Home Renovation Market Should Be Strong in 2024, Says Truist

Charlotte, NC, April 8, 2024-"Renovation markets have historically seen up to a year delay in rebounding from recessions after new construction turns,” reports Truist. “This would put the industry on pace to see a rebound in '24 given the mid-year '23 new housing starts rally. In addition, most all indicators of ‘housing confidence’ are very strong. Renovation could see a long cycle of growth well above the 3% rate seen last decade from owners with low mortgages staying in homes, in our view. The last cycle saw very little price inflation, which could change next cycle given success of price increases the last few years.

“Housing demand and especially new home construction began to pick up around mid 2023, but that pickup in demand has yet to be seen in the repair and remodel market. Historically, we have seen that there is a roughly year-long lag between pickups in housing demand and the renovation market. While there are modest signs of a pick up as of March, a true surge in spending has not been seen. Regardless, this precedent would suggest that there could be a turn at some point in 2024.

“Many of the indicators we typically associate with a strong renovation market are strong. Some of these indicators that we highlight in this report include growing home values, strong equity market returns, low unemployment, and above inflation wage growth.

“The renovation market grew roughly 3% CAGR in the last cycle pre-Covid, before seeing a substantial bump during the pandemic. While a long cycle, the total growth was rather tepid versus what many investors believe occurred. In our view, growth in the next cycle will be notably more than this driven by the lockup effect that is being seen elsewhere in the housing market. The low supply of homes on the market we believe will push homeowners more towards remodeling their homes instead of moving. Additionally, the vast majority of mortgage originations over the past decade were at rates below 5%, with many of these also refinanced even lower during the pandemic. In our view, many homeowners will use the incremental dollars saved via lower monthly payments on their homes for renovation projects as opposed to moving altogether. Investors should remember, however, that renovation is a very large market, and we believe growth near the high single digit we expect from home building is not feasible. However, we could see mid-single digit growth over a very long cycle.”