Why most homeowners prefer to renovate than buy a new home

There comes a time when homeowners grow tired of their outdated bathrooms, inefficient kitchens or lack of a first-floor guestroom. It happens a lot before the holiday entertainment season. The question becomes, do you update or move?

Across America, people would rather stay and upgrade their current home than move, according to a new Ipsos survey on behalf of Zillow. More than three-fourths of Americans in 20 metros would use their money to update their home instead of as a down payment on a new home.

The older the person, the more likely they are to stay put. Eighty-seven percent of Baby Boomers and 91 percent of retirees were most likely to renovate. Contractors are as busy as ever. Home remodeling activity reached a 25-year high in the second quarter this year, according to the Metrostudy Residential Remodeling Index.

Aspiration, meet reality

Not surprisingly, renters and Millennials were most likely to say they would use the money as a down payment. In an earlier study from Ipsos, the vast majority of Millennials expressed a desire to own a home. But, according to the Zillow survey, they’re having a hard time overcoming barriers like affording the down payment, qualifying for a mortgage, debt and job security.

“What we’ve seen so far is Millennials have fairly traditional views on housing, although they are slightly more inclined to consider a town home, or prioritize access to public transit, ahead of older generations,” says Sarah Mikhitarian, senior economist at Zillow. “The main concerns for Millennials in the housing market are the same that most Americans are facing – worsening affordability and limited inventory.” In other words, there may be a gap between aspiration and reality.

Discrimination still a problem

Discrimination is another hurdle for more than 10 percent of Americans surveyed. More than a quarter (29 percent) of African Americans surveyed said discrimination was a barrier. They were twice as likely to say that than Hispanic or Asian people. They were three times as likely to say so than white people. Slightly more Hispanic and Asian respondents than others said they would rather buy a new home than renovate. Zillow’s Mikhitarian says that could be partly because many Asian and Hispanic consumers are slightly younger. And younger consumers are more likely to move than older consumers.

Given the rising home prices and interest rates, it makes sense that many people would wait out the market and invest in their current home. Some people may not be able to afford or qualify for a new or larger mortgage. Consumer debt swelled to $13.29 trillion in the second quarter this year, eclipsing the last peak a decade ago by $618 billion, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data.

“As mortgage rates continue to rise, some homeowners may hesitate to sell their homes and buy a new one with a higher interest rate, which could tilt the scales even more toward renovating,” adds Mikhitarian.

How brands and retailers can help

When people do decide to renovate, there are several implications for home improvement retailers and manufacturers. For older homeowners, “it is vital that brands and retailers fully understand how to enable them to increase comfort in their homes,” says Kristy Click, client partner at Ipsos.

Meanwhile, Millennials, who are digitally engaged, will value brands that help them efficiently and conveniently make choices. “Companies should make apps and artificial intelligence options that help shoppers easily find what they are looking for online or in store,” Click says.

Another factor is whether brands and merchants fully understand where to reach people and how to best deliver against each type of buyer’s shopping needs. “Have merchants designed more effective tactics to make shopping easier through replenishment, personal home delivery or pick up in a secure location on-site?” she asks. In any case, brands and retailers must be prepared to address homeowners during this transitional time.