With mortgage rates nearing 7%, homeowners have less cash to splash. And this has a direct impact on your bottom line.
In this article, we cover what home improvement leaders need to know about rising mortgage costs’ impact on remodeling.
First, we’ll look at the effects of rising rates. Then, we’ll explore ways to overcome homeowner spending habits and stay afloat during this tricky period.
We’ll share some opportunities business leaders can jump on to stand out and win business. To finish up, we’ll share our top tips.
The Impact of Rising Mortgage Costs on Home Improvements
It’s no secret. Where there’s more disposable income, there’s more “fun” spending. This might be on things like vacations, non-essential upgrades, and—you guessed it—home improvements.
On the flip side, less disposable income means less discretionary purchases. The extras and nice-to-haves are the first thing to go. And with mortgage rates up, homeowners are rethinking their money habits:
- Borrowing is up as homeowners struggle with rising prices. The number of home equity loans grew 4.5% year over year, reaching 143,100 per month in June 2024. At the same time, unsecured personal loan debt hit a record $249 billion.
- Spending on renovations is trending downward. Homeowners poured $463 billion into home improvements in Q1 2024—down $26 billion from the peak in Q3 2023. As financing becomes more expensive, not as many homeowners are willing to invest in big upgrades.
- Fewer homeowners are renovating at all. In 2023, 55% of homeowners planned to renovate. In 2024, that number went down to 52%.
- Buyer’s remorse is creeping in. Almost one-fourth (24%) of homeowners admitted they spent too much on renovations. Overspending is the most common regret. Homeowners are second-guessing whether their remodel was truly worth it. This could influence their future buying decisions.
What This Means for Home Improvement
Higher mortgage costs are making homeowners more selective.
Many are scaling back projects, looking for cost-effective upgrades, or postponing renovations altogether.
Financing is still in play, but it could be a tougher sell with high interest rates. Winning over budget-conscious homeowners in 2025 will mean delivering more bang for their buck.
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The Shifts in Homeowner Financing Options
What can you do to maintain sales while mortgage rates continue to increase?
Here’s how to keep up with changing homeowner spending habits:
Offer Competitive Financing
This approach is all about making your services as easy as possible to pay for.
It involves offering flexible payment plans and partnering with third-party lenders. Your client can select the option that works best for them.
The benefits:
- More homeowners can afford your services.
- It removes the “I can’t afford it right now” objection.
Potential risks and drawbacks:
- Some financing options come with hidden fees or high long-term interest rates. This could lead to client dissatisfaction, which reflects poorly on your business.
Switch to Cost-Effective Alternatives
Retail sales revenue for kitchen and bath projects declined just 1% from 2020 to 2023. But unit sales were down 25% over that period.
What that tells us is this: homeowners aren’t spending less overall. Their budgets are just stretched thinner. They’re making fewer upgrades and going for cost-effective solutions.
You can follow this trend with lower-cost options.
For example, say you usually offer full custom cabinetry. You might instead offer high-quality refacing or semi-custom cabinets.
The benefits:
- This move keeps clients engaged with your business.
- It positions you as a problem-solver who understands financial realities.
Potential risks and drawbacks:
- Lower-cost options mean slimmer profit margins per project.
- Customers may expect luxury results from budget-friendly choices. Make sure to set realistic expectations.
Narrow Your Niche
The riches are in the niches—or so they say.
When money gets tight, you don’t want to be just another home remodeler. You want to be a specialist, an expert, the best in the business.
Possible niches include:
- Energy-efficient upgrades
- High-end bathroom retreats
- Budget-friendly kitchen makeovers
The benefits:
- It’s easier to stand out in a crowded market.
- Specialists can often charge premium pricing due to their expertise.
Potential risks and drawbacks:
- Going too niche may limit your customer base.
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Market Opportunities and Strategies for Business Leaders
Rising mortgage costs have an impact on remodeling. But you can still compete in this environment. Give these four strategies a try:
- Leverage high-interest rate environments to attract clients by positioning home improvements as a smart investment. When mortgage rates are high, homeowners are less likely to sell and move. They’re more open to renovating instead.
- Adopt the latest and greatest innovations in products and services to meet demand. Keep up with emerging trends in your industry and rise to the occasion. That might mean investing in more eco-friendly tools and materials, like recycled composite decking or low-VOC paints.
- Instead of cutting your prices, add value. For example, you might bundle in a free design consultation or extended warranty on materials. What might sound expensive upfront all of a sudden becomes a deal too good to resist.
- Use customer relationship management (CRM) software to stay organized and capitalize on opportunities. A CRM tracks leads and gives you the data needed to nurture on-the-fence buyers. You can also personalize your customer experience and optimize your pricing in tight markets.
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Top Tips for Remodelers Responding to Rising Mortgage Interest Rates
Markets change. It might be tricky now, but boom times will come again. According to NBC News, “households appear to be deferring, not ditching, their more ambitious renovation projects.”
In the meantime, here are our top tips:
- Add financing options. Partner with a lender to make it quick and easy for your customers to pay you.
- Brainstorm ways to add value to your services. Be sure to protect your profit margin in the process!
- Research trends in home improvements. Think about how you can use them to improve and differentiate your services.
- Invest in CRM software so you can provide the best possible customer experience. See how it can benefit your operations in real time with a free demo of improveit 360.
