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It's important to note that interest rates impact not only home sales but also home remodeling. Access to cash for a renovation is often financed through a Home Equity Line of Credit (HELOC). Since the pandemic began, Americans have built record equity in their homes. A HELOC, typically smaller than a first mortgage, is structured as a line of credit that can be paid off and redrawn, allowing homeowners to tap into their home equity—usually up to 80% of the home's value. This represents another financial tool that benefits homeowners. The 2023 Self Storage Demand Study indicates that 51% of self storage users are "temporary," typically meaning less than six months. The primary temporary use is moving homes (rentals and purchases), followed by home remodeling at a third of that figure. |
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According to Harvard's Housing Study, home improvement slowed significantly in early 2023 as interest rates rose. Homeowners have been shocked by the high rates and opted to "wait and see," delaying moving and remodeling. However, after a negative home remodeling trend throughout 2024, projections for 2025 show a noticeable increase in home renovations. Homeowners may now accept that 30-year mortgage rates won't decrease significantly enough and are choosing to tap into their substantial home equity instead of moving homes. |
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Source: Federal Reserve via St. Louis Fed |
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The equity gains of the last five years on an annualized basis are triple the rate of gains between 2010 and 2020. I anticipate that homeowners staying put due to personal financial constraints and/or high long-term mortgage rates will opt to remodel or add square footage to their current homes rather than purchase larger homes or move to a more expensive area. While this potential home renovation boom won't drastically alter the number of self storage rentals, I believe it will have a positive impact. |