The remodeling and home improvement market is worth a record $424 billion, according to the Joint Center for Housing Studies of Harvard University, up 10% over 2015 and more than 50% since the low in 2010. Most homes in the United States are over 20 years old, and 40% are at least 50 years old, according to JCHS’s “Improving America’s Housing 2019” report.
But who’s driving that remodeling growth and, more important, how do contractors find those people?
Increasing home prices around the country have made it difficult for young people to purchase their first home. As a result, they’re doing so later than previous generations, but they’re also more likely to purchase an existing home and update it to suit their needs or preferences than to opt for new construction.
Over half of older millennials, those between the ages of 29 and 38, were first-time homebuyers last year, according to the National Association of Realtors’ “2019 Generational Trends Report.” Eighty-six percent of buyers under 29 were buying their first home, the report found.
Regardless of age, the vast majority of homes purchased were previously owned. Indeed, NAR found little variation between age groups who purchased existing homes over new construction. The report found 88% of older millennials and 94% of younger millennials purchased an existing home, compared with 81% of older boomers and 82% of younger boomers.
Jeff Proctor, vice president of Ascent Builders and Basement Partners in Broomfield, hasn’t seen that play out locally yet.
“We don’t really run into a lot of millennials yet because they’re buying the newer homes that don’t need the work done. They’re looking more for stuff that’s already finished more than stuff that they would remodel,” he said.
He added that older millennials “are more inclined to put the effort into it, but the [younger] ones, they want it all done. They’ve got better things to do.”
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The NAR report found that new-home buyers were in fact driven by an explicit desire to avoid making any kind of renovations when they moved in, while price and value were the top-cited reasons for buyers who purchased existing homes.
Chad Hall, founder of Remodelmate, a Washington, D.C.-based tech company that connects remodeling contractors with homeowners, notes that even when they are willing to make some changes when they move in to a newly purchased home, the younger demographic is less interested in the old ways of doing business.
“There’s a new era or a new generation of homeowners, where … that customer is younger and doesn’t subscribe to the home improvement sites of yesteryear,” he said.
Hall said his company is trying to serve customers who “want to push a button and get a solution. It’s already been proven with Uber and Airbnb that the easier the customer experience, the better it is for everybody involved.”
JCHS found that more than 6.6 million units, over 70% of which were detached single-family, were converted from rental units to owner-occupied housing in 2017. That’s compared to 1.5 million new single-family homes built in the same period.
A small share of those newly converted homes had been categorized as a second or vacation home, but the majority were split between units that were occupied by renters and those that were simply left vacant, the center found. As owners retook procession of those homes to make them their primary residences, spending on improvements shot up: from $33 billion in 2010 and 2011, to $50 billion in 2016 and 2017.
Converters spent a great deal more on improvements than owners who remained in their homes, the report found. Owners spent an average $7,500 to convert a rental unit to a primary residence in 2016-2017, compared to an average $5,500 spent on homes where the owner lived throughout that period. A third of the investment spent by converters went to kitchens, baths and room additions, compared to a quarter spent by owners who remained in their homes.
NAR’s “2019 Remodeling Impact Report: DIY” found that more than half of home projects were completed by a professional hired for the job, and 41% of homeowners preferred to hire a professional when they wanted the project to “have better functionality or livability.”
NAR found an age difference here, too; one that will make simplifying the estimating and hiring process for homeowners all the more important. Almost three-quarters of millennials and more than half of Gen X homeowners prefer to take on a remodeling project themselves rather than hiring a professional.
Remodelmate’s Hall felt that the way that contractors find leads, and the way that homeowners find contractors, could be streamlined to the benefit of everyone involved.
He saw the way other tech companies were creating new ways for consumers to interact with service providers that were benefiting both parties.
“The world is becoming more digital, not less digital,” he said. By reducing the number of phone calls that homeowners had to make just to get their project started, Hall feels his platform could provide “a really good user experience from a transparency perspective, both on time and budget for the homeowner.”
On the service side, Hall wants to eliminate time lost chasing down leads that don’t convert into business.
“I realized that because the materials are negotiated a year in advance, sometimes 18 months in advance, we know what our hard costs are going to be on the materials side. Based on what we pay our installers, we know what the labor [costs] are going to be,” he explained.
“Why do we have such a huge sales force when we could potentially have a customer call in and say ‘I want a five-by-eight bathroom done with X, Y and Z,’ and just give them a price?”
That will work for customers who, as Hall says, “want to push a button and get a solution,” but Proctor notes that more affluent homeowners are looking for a more service-focused experience.
“Our target market is someone who’s a little higher end, who wants a little more customization in their process. We’re better suited for that client because they’re not necessarily looking for that kind of proceduralized company,” he said.
Serving those clients means referrals and reputation are everything.
“We’ve been in business since 2005, so we have the privilege of most of our work coming from referrals from past customers. That’s our biggest source of leads right now; customers [whose homes] we’ve done who have talked and showed it off.”
Today’s homeowners are less likely to change homes often, according to JCHS’s “Improving America’s Housing” report. Over the past 40 years, the national rate of people who change residences every year has fallen by almost half.
One of the leading reasons, according to JCHS, is older Americans’ tendency not to relocate as much as younger homeowners. The NAR report found over half of homebuyers 54 or older expect to spend 16 or more years in their new home.
The aging population is a huge opportunity for remodelers. JCHS found total improvement expenditures increased by 152% among homeowners 55 and older, and in 2017, accounted for half of all home improvement spending nationwide.
Boomers make up the majority of Proctor’s remodeling clientele.
“They’ve been in their house and they’re just not excited about moving. They’ve got established neighborhoods, neighbors that they like. They’ve got some equity in their house; they’ve been in it for a while and have done some improvements to bring it up to today’s standards,” he explained.
Homeowners who are remodeling to improve accessibility tend to spend more on improvements, too, JCHS found. The report suggests that’s likely a result of “higher-priced modifications such as bathroom and kitchen remodels, as well as room additions to allow for single-floor living or to accommodate aging parents or caregivers.”
JCHS found homeowners 55 and older making accessibility improvements spent about 36% of their improvement budget on remodeling a kitchen or bath, or adding a room, compared to 23% spent by homeowners in the same age group who were not making accessibility improvements.