Lock-in effect drives home renovation boom, Redfin says

With mortgage rates still hovering above 6% and far greater than those seen during the pandemic, homeowners are choosing to renovate their homes rather than move.

About 43% of Americans upgraded their homes last year, and 33% plan to remodel in the next year, according to a recent survey from Redfin that was conducted in November and consisted of 4,000 residents in the United States. Of those who renovated, 65% chose to as a direct alternative to finding a new home.

"Many Americans are choosing to stay put and make the home they already have work for them," said Chen Zhao, Redfin's head of economics research, in a press release Friday. "That could mean improving outdated spaces, adding space for a growing family or reconfiguring the existing space so it works for everyone."

Mortgage rates and home prices remain historically high, which has created a lock-in effect, as about 80% of homeowners with a mortgage have an interest rate below current levels, according to a separate Redfin report. 

More than a third of homeowners with a mortgage rate less than 6% would not give up their rate for any reason, and 47% said they couldn't afford current rates, a survey conducted by Best Interest Financial and Clever Real Estate found.

As a result, housing-inventory growth has flattened over the past year.

Gen Z and millennial homeowners were more likely than older generations to remodel instead of move, as 77% of each generation said they made improvements rather than relocating in the last year. Less than 50% of baby boomers did so, Redfin found.

"Younger homeowners are especially likely to renovate instead of jumping to a different house; they're earlier in their homeownership journey and more willing to invest in improvements to build equity," Zhao said. "Those with kids living at home are often motivated to plant deeper roots where they are so they can stay in the same school district and community."

Most homeowners are spending less than $20,000 in renovations, with 21% spending between $1,000 and $5,000, 20% spending between $5,000 and $10,000 and 23% spending between $10,000 and $20,000. About 16% dropped between $20,000 and $50,000, the report showed.

Painting was the most common upgrade, as nearly half of recent renovators opted for a new coat, while at least 40% of renovators improved their bathroom and kitchen. Exterior maintenance and landscaping was also popular, with 35% choosing such enhancements, Redfin said.

Climate resilience was important to homeowners as well, as 15% added renovations to make their homes more suited to handle natural disasters such as flooding, wind, fire and heat.

In a time when sellers severely outweigh buyers on the market, some sellers may benefit from remodeling their homes to help them stand out.

"If you can afford it, investing time and money into making your house look and feel better can help when it comes time to sell," said Jo Chavez, a Redfin Premier agent in Kansas City, Missouri, in the release. "Updated homes tend to sell faster than fixer-uppers, and for more money."