The red-hot housing market is great news for Boomers—yet, it’s a different story for Millennials. In some markets, housing costs have jumped 25 percent in the past year. Although prices are at a record high in today’s market, many older homeowners have opted to remodel or make improvements rather than sell their current homes. Rather than relocating after retirement, boomers see rising home prices as an opportunity to spend on big projects as they ride out the housing storm.
With new housing stock in short supply and the price of lumber skyrocketing, some potential buyers have decided to wait until the housing situation stabilizes and becomes more predictable. It’s estimated that contractors would need to build 2 million additional houses to keep pace with the current demand. Buyers who are willing to pay premium prices soon discover the only housing available are fixer-uppers in need of repair.
Spending on home improvement and repairs reached $420 billion in 2020, a 3 percent increase over the prior year. According to a recent study by Harvard University’s Joint Center for Housing Studies (JCHS), the market will expand by 4 percent this year as homeowners complete projects previously placed on hold. Abbe Will, a researcher, said, “People did not want contractors in their home, but that recovered very quickly.” Although the remodeling boom gained force during the pandemic when people were confined indoors, it is primarily a result of factors at play in the housing market.
- Low-interest rates
- Low housing inventory
- Severe lumber shortage
- Shortage of skilled construction workers
Millennials have Fewer Options
Whereas many boomers own their homes and often have significant equity, millennials tend to be first-time homebuyers with a limited supply of cash. This group tends to buy older, more affordable homes. Bank of America (BofA) research indicates 82 percent of millennials are more likely to buy a fixer-upper than a newly built home.
Younger buyers must also contend with student debt and job loss due to the pandemic. Although boomers and millennials are active DIYers, boomers are the bigger spenders. However, the JCHS study indicates that millennials do fewer DIY projects and hire more professional installers as millennials age.
- Home improvement spending is more robust in metro areas among millennials
- Remodeling permits rose 2 percent in metro areas with an above-average share of millennials homeowners under age 35
Cost of DIY Projects Are Increasing
Lumber shortages and shipping delays have created a ripple effect throughout the supply chain. Materials required to complete a variety of home improvement projects are in short supply and command hefty prices. Since millennials buy older homes, price increases put a significant dent in their renovation budgets. According to the BofA study, millennials begin their projects within six months of purchasing a home. They start with small projects such as painting and landscaping before moving on to complex projects.
In a conversation with Business Insider, Paul Emrath, vice president of surveys and housing policy research at the National Association of Home Builders (NAHB), said, “There are things that people usually do when they buy an existing home. So, they spend more on remodeling projects in the year after they buy the home than they do in a typical year when they own the home.”
- Millennials are using loans more than cash for projects exceeding $10,000
- Millennials feel less comfortable working on complex projects
The cost of making a house livable can be steep. What should be a happy occasion for many young people can become a source of great stress. In a Bankrate survey of over 1,400 homebuyers, almost two-thirds of millennials said they had regrets about purchasing a home. More than 20 percent of these respondents mentioned maintenance and additional costs as reasons for their disappointment.