More homeowners turning to secured financing to fund renovations
Gen-Xers are driving borrowing, according to a new study from Houzz and Bank of America.
U.S. homeowners who leveraged secured financing to pay for renovations in 2017 were able to take on larger home improvement projects, with nearly three times the median spend of those who paid for renovations with cash-only ($32,000 versus $13,000), according to a study released by Houzz in collaboration with Bank of America.
The study explored the role of secured financing in U.S. home improvement and found that one in seven homeowners who used secured financing — such as a home equity line of credit (HELOC), home equity loan or cash-out refinancing — took on major remodeling projects. In fact, homeowners who spent $50,000 or more on renovations were three times more likely to pay with secured financing than those spending between $5,000 and $14,999 (31% versus 10%, respectively).
Of the available secured financing options, HELOCs are the most commonly used (47%). HELOC originations totaled $157 billion in 2017, accounting for more than 60% of consumer real estate-secured financing. According to the study, top motivations for choosing a HELOC include ease of use (39%), low cost (38%), quick access to funds (30%) and tax deductions (29%).
“Recent record gains in home equity give homeowners greater confidence to invest in their home, spurring growth in the more than $300 billion home-improvement market. Our study confirms that a meaningful share of homeowners are tapping into it to fund large-scale renovations, such as kitchen and bathroom remodels,” said Nino Sitchinava, Houzz principal economist. “Secured loan originations will likely continue to grow in the near term as homeowners increasingly find it advantageous to stay put and renovate rather than trade up to a nicer home in an environment of tight housing inventories and higher interest rates, among other factors.”
Gen-Xers, who represent 40% of renovating homeowners, are more likely to finance renovations with a secured loan than any other generation (17% compared to 15% of baby boomers and 10% of millennials).* Of borrowers, they also spend the most on renovations (median of $38,000 in 2017), compared to millennials and baby boomers who each spent a median $30,000. Across generations, borrowers financed a significant portion of renovations (up to 74%) with secured loans.
“Homeowners, and Gen-Xers in particular, are comfortable using their home’s equity to make renovations that can have a significant impact on their lives, increasing their home’s value and improving their comfort,” Bank of America Senior Vice President David Doyle said. “Using responsible financing options, such as HELOCs from Bank of America, homeowners are updating aging housing stock and improving their home lifestyle while still balancing other financial obligations.”
Most borrowers plan to pay off their secured loans within five years, though one-third prefer six years or longer payment plans (32%), in part informed by loan pay-off terms. The payment period varies widely depending on the type of loan, with cash-out refinance commanding the longest payoff schedules. More than half of renovating homeowners leveraged promotional interest rates for secured financing in 2017 (57%), most commonly for HELOCs (61%), followed by home equity loans (58%) and cash-out refinancing (47%).
The Houzz & Home Survey
The annual Houzz & Home survey is the largest survey of residential remodeling, building and decorating activity published. The survey covers a wide range of renovation projects in 2017, from interior remodels and additions to home systems, exterior upgrades and outdoor projects. Data gathered includes historical and planned spends, professional involvement, motivations and challenges behind building, renovation and decorating projects, as well as planned activities for 2018. The 2018 study includes nearly 150,000 respondents in the U.S. alone, providing insights into the home improvement activity of the more than 40 million monthly unique users of the Houzz site and mobile apps.
The Houzz & Home Survey was sent to registered users of Houzz and fielded in March-April 2018.
Houzz has over 17 million photos of professionally designed interiors and exteriors, including completed kitchen and bathroom projects, and more than 2.1 million active home remodeling and design professionals including architects, interior designers, general contractors and design-build firms.
*Generational segments are defined as millennials (ages 25 to 34), Gen-Xers (ages 35 to 54) and baby boomers (ages 55+).