Financial challenges of the COVID-19 pandemic will require creative financing solutions for these owners
A national survey from Discover Financial Services found that as of August of 2020, 58% of homeowners were planning improvements within the next year, up 5% from March. The vast majority of those respondents (83%) claimed they were planning these improvements as a way to make themselves more comfortable as they spend time at home. Sixty-two per cent (62%) also said they wanted to improve the health and safety features of their home.
While the COVID-19 pandemic is clearly spurring renovation interest, it’s also presenting challenges to renovation-minded homeowners. Forty-nine per cent (49%) of those planning projects said they had to delay because of the financial impacts of the pandemic.
Nicole Straub (pictured), general manager of Discover Home Loans, explained how and why so many American homeowners are conducting and financing renovations. She broke down how important COVID-related remodeling is for these owners and what the average renovation-minded homeowner looks like. She shared some insights, too, into how mortgage professionals can help these homeowners finance their renovations.
“In light of the pandemic, homeowners are looking for new and better ways to improve their homes as they spend more time than ever in them,” said Straub. “Mortgage rates are very low right now and homeowners can take advantage by using the equity in their homes to pay for projects such as remodeling a home office, installing an air-filtration system or even consolidating high interest debt.”
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Straub noted some key specific upgrades Americans are looking to make. Eighteen per cent (18%) of respondents are either adding or remodeling their home offices, 11% are replacing hard-to-clean surfaces, and 9% are installing air-filtration systems. There is a clear desire in a pocket of homeowners to make their homes safer and more multi-purpose.
The survey also found that these renovation-minded owners are disproportionately younger. Seventy two per cent (72%) of Gen Z and millennial respondents were planning to make improvements to their homes, compared to 57% of Gen X and 42% of baby boomers. Straub attributes this generational distribution to the unique conditions of the pandemic. Where younger people might spend more of their free time and disposable income travelling, going to restaurants, and attending events, they now have more time and money to spend on their homes.
While a large number (44%) of homeowners are planning to finance improvements with cash from savings, a further 24% of respondents said they’re using credit cards and another 21% are using home equity lines of credit. While the scale of the project will often determine the nature of the financing required, Straub noted the opportunity for many of those homeowners looking to make bigger improvements to secure financing through a cash-out refinance.
The surprising financial challenges of remodeling during a pandemic, such as higher labor costs and the historically high price of lumber, could present an opportunity for mortgage professionals to offer creative financing solutions to homeowners that need to make improvements. According to the survey, mortgage pros with a good digital presence are the most likely to capture that opportunity.
Discover’s survey also found that a growing number of homeowners are preferring to use a digital process as they secure financing for their loans. Fifty per cent (50%) of homeowners surveyed said they prefer to secure financing online while the preference for in-person applications have dropped to 50% from 57%.
“From learning and working to exercising and raising families, homes have become the place where Americans do nearly everything in the wake of COVID-19,” Straub said. “Adapting homes to meet these new needs requires some work, however, which is why it’s only natural we’re seeing a rise in improvement project planning,”
