Homeowners want to use cash, not credit, to pay for renovations, survey finds

Most of the substantial percentage of homeowners that have done or are planning renovations will primarily use savings or current cash flow, instead of debt, to fund their activities, LendingTree found.

Looking backward, 68% of the almost 2,200 homeowners participating in the LendingTree survey performed in May, did some sort of home improvement project in the prior 12 months. On a forward basis, 62% are looking to start some form of renovation in the next 12 months.

Even though cash is being used to pay for most of these projects, it is not coming from pandemic-related savings, said Jacob Channel, senior economist at LendingTree. If anything, the personal savings rate has not only dipped from that period, it is now below that of the year leading up to the pandemic.

Furthermore, "the most popular projects that people undertake according to our survey aren't always super expensive," Channel said. For example, homeowners can paint a room, do some landscaping, or even make changes to a bathroom for less than $1,000, especially if they elect to do the work themselves.

"In a nutshell, even if they're not swimming in pandemic-related savings, people probably aren't relying on financing to pay for home improvement projects because their projects aren't prohibitively expensive," Channel said. "And, as a result, paying cash for them is both easier and more cost-effective than getting a loan would be."

High mortgage rates and few homes for sale are contributing to the decision to take on these projects. Approximately two in 10 said they do not like some aspect of their existing property but they are unable to buy a new one.

It is not just first lien mortgages that are affected by rising rates, but both closed- and open-end home equity products also have become more expensive.

Just 21% of owners indicated they are fixing up their home in preparation for a sale.

Meanwhile 36% are doing repairs to help deal with the normal aging process of their property.

A July report from the Joint Center for Housing Studies of Harvard University expected a softening in home renovation through the second quarter of 2024, but that could be offset by an increase of property owners fixing up their house to meet changing needs.

Baby boomers, the generation most likely to sell in order to downsize, had the smaller shares of those that did a project, at 54%, or plan to do one, 53%, according to LendingTree.

On the other hand, millennials had the highest share of respondents that did a project in the prior 12 months, at 78%, and 72% of that group were planning one going forward.

Putting in solar panels is the most expensive project, but even for that, various forms of secured and unsecured debt trail savings and current cash flow as the source of funding.

"If you have the money to pay for something outright, even if that thing is expensive, you might be incentivized to do so because it'll be cheaper in the long run and won't involve the hassle of getting a loan," Channel said when asked about solar installation.

This kind of renovation is one that appeals to homeowners whose incomes skew toward the higher end of the spectrum.

"If a project is more popular among higher-income individuals, then the share of people who pay for that project with cash might be higher than the share of people who pay cash for a less expensive project that's more common among people with middle/lower incomes," Channel added.

In the past 12 months, a started or completed solar panel project cost the homeowner an average of $11,536. Respondents planning to do this work expect to pay $10,843.

For those that already did the work, 27% used savings and 24% tapped cash flow. A closed-end home equity loan was the third choice, at 18%, with its cousin, the home equity line of credit used in 5% of the cases.

On the unsecured side, 13% used credit cards, and 12% took out a personal loan.

The results are similar for those planning to install solar panels, with 25% each saying they will use savings or cash flow. Home equity loans will be used in 17%, while HELOCs will be used in 7%.

Personal loans will be applied for in 14% of the solar projects and 12% will use their credit cards.

Meanwhile, in good news for servicers, if survey respondents were faced with an emergency home-related expense of $5,000, 53% said they have savings on hand to cover it. Respondents were allowed to select more than one response.

Just under one-quarter, 24%, said they could pull from their existing cash-flow to help defray costs, while a similar share would use their credit card.

Getting a personal loan would be the choice of 14%, while borrowing from a family member was cited by 13%. Closed-end home equity loans would be used by 10% and HELOCs by 7%.

A small but significant portion, 6% said they would delay or not pay for the emergency expense at all, while 3% said they would use some other undefined method.