Nearly half of American homeowners now say renovating their current house is the most realistic financial option for their family, compared with just 13 percent who plan to buy a new home, according to a recent survey from Citizens Financial Group. Seven in 10 homeowners expect to complete a remodeling project in the next two years.
The numbers reflect where the housing market is. Home prices have risen 54 percent since 2020, according to the Joint Center for Housing Studies at Harvard University. Mortgage rates hovering between 6 and 6.5 percent have made many homeowners reluctant to trade in the 3 to 4 percent loans they locked in before rates climbed. The resulting inventory shortage, with 17 percent fewer homes for sale than before the pandemic, means fewer places to go even for those who want to move.
Real estate agents describe the phenomenon plainly. Homeowners love their neighborhoods and want their space exactly the way they want it, so they renovate rather than relocate.
Which renovations are worth it
A project that adds square footage or improves the function of the home in ways the household will actually use scores higher than a cosmetic upgrade that looks good for an eventual sale but changes little about daily life.
Historically, projects that add functional living space, including finished basements, bedroom additions and expanded kitchens, return more in both resale value and everyday use than surface-level renovations. A kitchen or bath renovation tends to recover a higher percentage of its cost at sale than a decorating overhaul. Outdoor living improvements, including decks and landscaping, have performed well in post-pandemic valuations as buyers increasingly prioritize usable outdoor space.
For Black homeowners in particular, renovation decisions deserve additional strategic thought. Because Black neighborhoods have historically been undervalued in appraisals due to documented systemic biases, investments that would add clear, comparable value in surrounding neighborhoods are the safest financial choices. Projects that can be measured against comps and that appeal to the broadest buyer pool carry less appraisal risk.
How to manage costs
Project costs have climbed along with everything else since 2020, and the average renovation regularly exceeds initial estimates. Labor shortages, elevated material prices and supply chain disruptions that began during the pandemic have not fully resolved.
The most effective way to manage costs is to define exactly what you need before you talk to contractors. Homeowners who go into the bidding process with a clear scope of work are better positioned to compare bids meaningfully and to push back when proposals include unnecessary upgrades. Vague projects expand vague costs.
Getting three bids is the standard advice for a reason. The spread between the lowest and highest bid on the same project can be substantial, and talking to multiple contractors also helps you understand which cost components are fixed and which have flexibility.
Phasing projects over time also spreads financial risk. A plan that covers two major projects does not have to happen simultaneously. Completing one renovation, building equity from the improvement and then using that position to finance the next is a more controlled approach than borrowing heavily for everything at once.
How to finance the work
The primary financing options for renovation are a home equity loan, a home equity line of credit and a cash-out refinance. Each has tradeoffs depending on current rates, the scope of the project and how long you intend to stay.
For home equity holders who locked in a low mortgage rate and do not want to refinance the entire balance at today’s higher rates, a home equity loan or line of credit is often the better tool. It preserves the original mortgage and borrows only against the equity built up since purchase.
Consulting a HUD-approved housing counselor before making major home financing decisions is a resource that costs nothing and is particularly worth pursuing for homeowners navigating this for the first time.
