Lack of Available Credit Bad News for Home Improvement Industry

[Mar 24, 2009.]

 

USA TODAY recently ran an article that summarized the current state of the home improvement business.

Harvard University's Joint Center for Housing Studies reported that spending on home improvement projects is expected to drop at an annual rate of 12.1 percent by the third quarter. The Home Improvement Research Institute reported that total sales feel 4.5 percent to $290.5 billion in 2008 which represented the second consecutive annual decline.

With housing markets still weak and consumer spending falling generally, the institute expects home improvement product sales to fall 6.4% more in 2009 to $272 billion.

The drop in sales is being attributed to several trends.

First, fewer homes are selling. The home improvement industry relies heavily on new home sales since many new homeowners choose to remodel part of their new house.

Next, home equity lines of credit have become much more difficult to obtain. Banks are seeing delinquency rates rise and housing values fall which has led to a tight lending environment. Homeowners who would normally rely on tapping the equity in their home to finance a home improvement project must find the money elsewhere or put the project off.

Finally, falling home values have many homeowners concerned. Deciding whether to spend the money on a home improvement project that would've normally contributed to an increase in the resale value of the home has become much more difficult. The risk that the investment in the home could be wiped out by further downward pressure on home prices is very real.

Many experts believe that the home improvement industry will not begin to rebound until banks begin to lend via home equity loans and lines of credit again.

"A lot of it is access to equity," says Dan Fritschen, founder of RemodelOrMove.com. "Two years ago, there was that access. People could use equity or knew they could. But now so many are underwater (owe more than their homes are worth). They can't get the equity line, and if they do have cash, they are more reluctant to spend it. People are feeling insecure."

 

About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.