Spending on home renovations is expected to slow this year because of factors such as declining home sales and values, rising interest rates , continuing inflation and rumblings of a coming recession, says Abbe Will, senior research associate with Harvard University’s Joint Center for Housing Studies.
As economic growth slows, planning and prioritizing will be key to remodeling confidently. Here are five tips to help you remodel in an uncertain economy.
1. START WITH AN EMERGENCY FUND
Even when the economy is doing well, it’s ideal to have an emergency fund before starting a remodel, says Eric Maldonado, a certified financial planner based in San Luis Obispo, Calif.
“What you’re trying to avoid is starting with nothing saved, taking out debt to afford these things and not really providing yourself with a smart foundation to start from,” he says.
A six-month fund is a good goal, he says, especially if you’re concerned about losing your job.
2. NARROW YOUR FINANCIAL GOALS
After your emergency fund is set, put remodeling on a short list of financial priorities for the year and distribute your budget accordingly, Maldonado says.
For example, if your main goals are to pay off debt, contribute to your kids’ college funds and begin home improvement projects, determine how much each goal costs and how much you can afford to spend on them every month, he says.
“It’s kind of like putting the big rocks into the jar first,” he says.
3. PRIORITIZE REPAIRS AND SMALL UPDATES
If high gas and grocery bills have left you with less to spend on home improvements this year, prioritize projects that have the potential to affect your finances the most, says Katherine Fox, a certified financial planner based in Portland.
Fox recommends starting with fixes that would be costlier to delay, such as a leaking pipe. Then, consider updates that will save you money in the future, like new windows or insulation that may lower your utility bill.
Look for opportunities to mix “nice-to-haves” with “must-haves,” she says.
4. COMPARE FINANCING OPTIONS
The Federal Reserve’s persistent interest rate hikes over the past year have led to raised rates on most financing options, so you’ll likely pay more interest on a new home improvement loan than you would have before.
Maldonado says home equity loans and lines of credit are typically the lowest-rate options, but he recommends comparing financing options to find the best rate and terms.
Most home equity and personal loans come in a lump sum and have fixed interest rates, so your monthly payment remains the same for the full term.
A home equity line of credit, or HELOC, provides more flexibility for large projects because you can draw on it as needed for up to about 10 years. However, HELOCs typically have variable rates, which means monthly payments can fluctuate.
5. CONSIDER DELAYING TO SAVE MONEY
While prioritizing projects, decide whether you can delay any for a year or more. As fickle as the economy has been, there are signs that those who wait could pay less.
The pandemic-induced remodeling frenzy triggered a sharp increase in labor and materials costs that homeowners felt last year, according to a March 2023 report from Harvard’s Joint Center for Housing Studies. Cement, brick and plywood prices rose 20 percent to 25 percent between March 2020 and December 2022, the report found. Insulation material costs rose 34 percent. This year, materials may get cheaper, the report said.