Five tips to tackle a home remodel in a shaky economy

Spring is kickoff season for many kitchen remodels, bathroom updates and deck repairs, but recent economic turmoil may have homeowners questioning their home improvement plans.

Spending on home renovations is expected to slow this year because of factors such as declining home sales and values, rising interest rates, inflation and rumblings of a coming recession, says Abbe Will, senior research associate with Harvard University’s Joint Center for Housing Studies.

As economic growth slows, planning and prioritizing will be key to remodeling confidently. Here are tips to help you remodel in an uncertain economy.

Start with an emergency fund

Even when the economy is doing well, it’s ideal to have an emergency fund before starting a remodel, said Eric Maldonado, a certified financial planner based in San Luis Obispo.

“What you’re trying to avoid is starting with nothing saved, taking out debt to afford these things and not really providing yourself with a smart foundation to start from,” he says.

A six-month fund is a good goal, he says.

Narrow your financial goals

After the emergency fund is set, put remodeling on a short list of your financial priorities for the year and distribute your budget accordingly, Maldonado said.

For example, if your main goals are to pay off debt, contribute to your kids’ college funds and begin home improvement projects, determine how much each goal costs and how much you can afford to spend on them every month, he said.

This may mean slowing progress toward other goals, such as early retirement.

Prioritize repairs and small updates

If high gas and grocery bills have left you with less to spend on home improvements, prioritize projects that have the potential to affect your finances the most, said Katherine Fox, a certified financial planner based in Portland, Ore.

Fox recommends starting with fixes that would be costlier to delay, such as a leaking pipe. Then, consider updates that will save you money in the future, such as new windows that may lower your utility bill.

Compare financing options

The Federal Reserve’s persistent interest rate hikes over the last year have led to higher rates on most financing options, so you’ll probably pay more interest on a new home improvement loan than you would have before.

Maldonado said home equity loans and lines of credit are typically the lowest-rate options, but he recommends comparing financing options to find the best rate and terms.

Most home equity and personal loans come in a lump sum and have fixed interest rates, so your monthly payment remains the same for the full term.

A home equity line of credit provides more flexibility for large projects because you can draw on it as needed for up to about 10 years. However, HELOCs typically have variable rates, which means monthly payments can fluctuate.

Consider delaying to save money

While prioritizing projects, decide whether you can delay any for a year or more. There are signs that those who wait could pay less.

The pandemic-induced remodeling frenzy triggered a sharp increase in labor and materials costs that homeowners felt last year, according to a March 2023 report from the Joint Center for Housing Studies. This year, materials may get cheaper, the report said.

Likewise, home improvement spending is expected to decline in early 2024 for the first time in more than a decade, according to the center’s Leading Indicator of Remodeling Activity.