Strength of Remodeling Market Seen in Growing Balance Sheets

The residential remodeling market has remained strong throughout the COVID-19 pandemic, as Americans spent more time at home and made improvements to boost their home’s market value.

Those remodeling improvements, along with staggering home price growth in the second year of the pandemic, have delivered strong home value appreciation over the last year, according to economists at the National Association of Home Builders (NAHB).

Aggregate Market Value

The aggregate market value of all owner-occupied real estate in the U.S. in the first quarter of 2022 rose $1.6 trillion from the fourth quarter of 2021 to $39.7 trillion, data from the Federal Reserve showed.

In addition, household real estate assets’ year-over-year gain in the first quarter was 16.2%, the largest year-over-year percentage gain since 2001, the Fed’s Flow of Funds showed. Owners’ equity as a percentage of households’ real estate was the highest since 1986.

Balance Sheets

Real-estate secured liabilities of households’ balance sheets, such as mortgages, home equity loans, and home equity lines of credit (HELOCs), showed an increase of $200 billion from the previous quarter to $12.0 trillion, an 8.4% year-over-year gain and its largest increase since the first quarter of 2007.

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The change in the value of total home mortgages is due to a combination of new loans taken out for home purchases and the aggregate unpaid principal balance of all existing mortgages. This period’s increase is likely owed more to a heated market catering mostly to those who could afford more expensive homes.

Aggregate Owners’ Equity

Aggregate owners’ equity, or the difference between homeowners’ real estate-secured assets and liabilities, rose to $27.8 trillion or 70% of all owner-occupied household real estate. Home equity’s value, the common source for financing remodeling projects, is collateral against which loans can be taken out, either through HELOCs or home equity loans.