It’s not just home sales that are down—renovations slump due to high borrowing costs

Higher interest rates have slowed not only home sales but also renovations, a flurry of retailer reports reveals.

According to Home Depot and Lowe’s—two of America’s largest home improvement retailers—homeowners are putting off big projects that require loans and opting for cheaper do-it-yourself options.

“We continue to see softer engagement in larger discretionary projects where customers typically use financing to fund the projects such as kitchen and bath remodels,” said William Bastek, Home Depot’s executive vice president of merchandising.

Meanwhile, Lowe’s reported a 6.2% drop in comparable sales last quarter as shoppers purchased single items and further delayed discretionary projects.

The company called this a “decline in DIY big-ticket discretionary spending.”

Building experts say Americans don’t have the appetite to invest tens of thousands of dollars in their homes, even if it means increasing their resale value.

Instead, they prefer to look for cheaper cabinets, flooring, and countertops to get the job done.

“These downgrades are becoming more common with cost-conscious consumers,” Matt Sanders, an executive with John Burns, told Yahoo Finance.

With financing costs expected to remain higher for longer, the picture isn’t likely to improve anytime soon.

The real impact of higher rates

Higher interest rates have taken the sails out of every facet of the housing market, including renovations.

A Harvard University study predicted that home improvement spending would drop by more than $30 billion this year due to rising costs and elevated rates.

John Burns’ research further corroborated this, finding that 36% of homeowners are delaying big projects due to higher financing costs.

“Interest rates appear to be the most significant driving force for the large-project remodeling slowdown,” said Deane Biermeier, a housing expert with Forbes.

Even homeowners who decide to to do a big renovation are thinking twice about how they finance the project.

According to a recent survey by Discover Home Loans, only 9% of homeowners plan to use cash-out refinancing to fund their home improvement, down significantly from 24% in 2023.

“Homeowners are understandably avoiding lending options that would impact the rate they currently have on their primary mortgage,” said Rob Cook, vice president of marketing at Discover Home Loans.

Even before the steep rise in interest rates, maintenance was a huge cost of homeownership.

According to a new report by Creditnews Research, maintenance and renovation costs accounted for 21.3% of total homeownership expenditure between 2000 and 2023.

That’s almost as much as the average homeowner spends on homeowners insurance and taxes combined.