Amid all the talk and uncertainty around tariffs lies some positive news related to the remodeling market that came out of the International Builders’ Show in Las Vegas about a month ago. Specifically, according to a panel discussion hosted by the National Association of Home Builders (NAHB), an aging housing stock, record levels of home equity and favorable demographics create positive growth prospects for the remodeling sector in 2025.
The outlook bodes well for the remodeling sector, of which flooring is a key part. Let’s start by setting the stage: Nearly 40% of homeowners have no mortgage. Of the remaining 60% of homeowners, 83% have outstanding mortgages below 6% and 55% are below 4%. There’s not much interest on these people’s part to take out a 7% mortgage. And while lower mortgage rates are hopefully on the horizon, the process will be bumpy as long-term interest rates could remain flat or even increase with larger fiscal deficits.
These ongoing housing affordability challenges signal that demand for remodeling projects will remain solid in 2025. When people don’t move, they renovate. The only issue is a lot of renovation is financed through home equity loans, and the interest rate on those is not overly appetizing. But people can sit on the sidelines for only so long. Patience is not a virtue for the majority of Americans.
The NAHB/Westlake Royal Remodeling Market Index (RMI), a quarterly survey of NAHB remodeler members that provides insight for the remodeling industry, continues to exhibit positive sentiment, especially when compared to other housing sectors, well above the breakeven point of 50, since the second quarter of 2020. Aging housing stock drives renovation projects. So does an inability to relocate.
Then there is something else I have not heard many people talk about, and that’s “aging in place.” Aging in place is the concept of older adults remaining in their homes and communities as they age rather than moving to assisted-living facilities or nursing homes. It emphasizes maintaining independence, safety and comfort in the familiar environment of their homes for as long as possible. My mother, who passed in October 2023, was adamant about remaining in her condo until she took her last breath. In response, we made some improvements to the condo along the way.
As people age in their homes, they want to make them as comfortable and appealing as possible. And this demographic is significant. The number of Americans aged 65 and older will reach 80 million in 2040. That’s one out of every five people. The number of adults 85 and older, will have quadrupled between 2000 and 2040.
While the NAHB panel agreed that the remodeling industry faces some headwinds, they say favorable demographics and characteristics of the current housing stock will boost remodeling activity in 2025. In fact, NAHB is forecasting residential remodeling activity to post a 5% gain in 2025 and 3% in 2026. I am going surmise that the reason they see less growth in 2026 is because they expect an uptick in relocation.
Speaking of which, economists speaking at the show said single-family housing production should register a slight rise in 2025 as builders contend with conflicting market conditions. On one hand, you have favorable policy moves in the areas of regulatory reform and extension of the 2017 tax cuts. On the other hand, you have tariff and immigration actions that could have an adverse impact on housing costs and supply.
And then there are other issues like escalating housing prices, which accounts for more than half of the increase in the consumer price index (CPI). Those escalating housing prices is a result of low inventory. My son has been looking for a house in northern New Jersey for a year. He is telling me even pieces of crap are going for $100,000 over asking price. For those scoring a home, housing is still rising at a 4.4% annual clip and there is a shortage of roughly 1.5 million units. In a sign of pent-up demand for homeownership, a Zonda survey showed 31% of respondents expect to buy a home in the next three to five years, up from 17% in 2022 and 2023. The same survey showed that 20% of respondents were willing to pay up to $500 more monthly for a mortgage than their current rent.
I know it’s not all peaches and cream out there. But I’m always one to cite positive news when I can find it.
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