Home Remodeling Spending Fell 13% in September; Residential Construction Slid 5.5%

Monthly numbers can bounce around, but a slowdown in renovations fits a housing market squeezed by high borrowing costs.

How much did remodeling spending fall in September?

Spending on residential improvements fell 13.0% from August and 18.0% from a year earlier, according to an analysis of new Census Bureau data. That drop pulled private residential construction down 5.5% to a seasonally adjusted annual rate of $848.8 billion, 8.9% below last year, in figures released Nov. 2.

A seasonally adjusted annual rate expresses one month's pace as a yearly total. The numbers come from the government's monthly construction spending report, which Reuters covered on Monday and the National Association of Home Builders broke down in detail. Total U.S. construction spending fell 1.9% in September, a surprise for economists polled by Reuters, who had expected a 0.3% gain. It was down 2.7% from a year earlier.

Remodeling did most of the damage inside the housing numbers. New single-family spending was unchanged from August and down 2.4% from a year earlier, while multifamily spending was about flat. Reuters said the drop in residential investment likely reflected weakness in renovations.

A caution before reading too much into one month: August's total was revised up sharply, to a 2.0% gain from the 0.9% first reported. These estimates get revised, so a single month's swing, in either direction, can look different later on.

Why homeowners may be pulling back

The report doesn't explain why homeowners held off, but several pressures are clear. Reuters pointed to high material costs and to the Iran war, which has helped push up mortgage rates. Freddie Mac's 30-year rate has climbed at least 1.25 percentage points since late February, according to Reuters.

In a July report, the NAHB said 74% of remodelers reported that suppliers had raised material prices since March, by an average of 6.7%. And other parts of the construction economy are doing fine. Private nonresidential spending rose 1.1% in September, helped by data centers, where spending was up 90.3% from a year ago, NAHB said. So this isn't a story of builders running out of work everywhere. It's a housing story.

Harvard's Joint Center for Housing Studies expected a soft stretch before this report came out. Its latest forecast calls for annual spending of about $525 billion on home improvements and repairs through the third quarter of 2027, with growth of 1.5%. That's a slow pace. "Retail spending on building products has been flat to negative, and remodeling permits have stagnated, which points to continued sluggish renovation activity," said Rachel Bogardus Drew, who directs the center's Remodeling Futures Program. Harvard's measure is built differently from the Census number, so the two aren't directly comparable, but they point the same way.

What this means for your wallet

If you're planning a project, the first question is usually how to pay for it. Homeowners have plenty of equity to borrow against: a record $18 trillion in the second quarter, with about $11.7 trillion considered tappable, according to ICE data reported by HousingWire. The cost of using it is the catch.

Bankrate's weekly survey put the average home equity line of credit (HELOC) rate at 7.36% as of Oct. 21. Forbes Advisor, citing Curinos data, put it at 7.50% on Nov. 2. The two surveys use different loan sizes and borrower profiles, and your own rate will depend on your credit and how much equity you have.

Here's what that looks like on a $40,000 kitchen project:

• HELOC at 7.5%, interest-only: about $250 a month during the draw period, but the $40,000 balance doesn't shrink. Most HELOC rates are variable, so the payment can change.
• Fixed 10-year loan at an example rate of 8.5%: about $496 a month, with the balance fully paid off at the end.

The lower payment on the first option can look better, but you'd still owe the full amount. Neither is automatically the right fit, and the example rate is only for illustration.

Some homeowners also think about a cash-out refinance, but that replaces the whole mortgage. With the average 30-year fixed APR at 7.07% on Nov. 2, according to NerdWallet, and Freddie Mac's weekly average at 7.24% last week, it could cost more overall for anyone holding a lower rate. Our guide on when a refinance makes sense walks through the math.

If demand for remodeling stays soft, some contractors may have more open dates, and that could give homeowners a little more room to compare bids. That's not a promise of lower prices, though, since materials have been getting more expensive. Written bids from more than one contractor are one way to see what the market looks like in your area.

Chris Herbert, the Harvard center's managing director, warned that weak housing starts and a soft housing market "could slow growth in remodeling spending even further in the quarters ahead." If you're selling soon, local home prices may matter more than national spending trends when you're deciding how much to put into a project.