Amid High Interest Rates and Inflation, American Homeowners Would Rather Renovate Than Buy a New Home

Discover Home Loans recently conducted a survey to determine Americans’ intentions for their homes, and whether they are choosing to renovate their current property or buy a new house that better fits their needs and personal style.

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84% of U.S. homeowners say interest rates have impacted their decision to buy a new home. (Graphic: Business Wire)

The survey found high interest rates are having a profound impact on American homeowners. 84% who were planning to buy a new home say interest rates have affected their decision. Of those impacted, 46% indicated they are no longer looking, 35% are less committed in their search and 30% have lowered their budget. For most in this group, rates would need to fall significantly with 66% of respondents planning to wait for 30-year mortgage rates to dip below 5% before they would seriously consider purchasing a home.

“When the Fed does gain confidence that inflation is under control, rate decreases are likely to be modest and gradual,” says Rob Cook, vice president of marketing at Discover Home Loans. “In the meantime, the housing market may remain sluggish. Consumers should reset their expectations and budgets accordingly.”

Interest rates are also modifying homeowners’ preferred financing options. Only 9% of homeowners plan to use a cash-out refinance for their home improvement project, down significantly from 24% in 2023. “Homeowners are understandably avoiding lending options that would impact the rate they currently have on their primary mortgage,” says Cook. “In this rate environment, home equity loans are an attractive option as they allow homeowners to leverage the available equity they have in their homes without modifying their existing mortgage.”

Inflation also has a significant impact on homeowners’ finances, with 49% of respondents reducing discretionary spending and 33% choosing to delay home renovation projects. For those who pursue home renovations, many are feeling inflation’s impact with 47% of respondents indicating their project is costing more than they expected and 30% stating they have reduced the size of their project.

U.S. Homeowners Are Renovating to Add Personal Style and Functionality

More than half (55%) of American homeowners would rather renovate their current home vs. move to a new home (24%) or keep their home “as is” (21%). In fact, 57% of survey respondents either have a home improvement project underway or are planning a project within the next year. For those planning a home improvement project, 87% want to make cosmetic changes to reflect their personal style; 84% want to use home improvements as an investment opportunity; and 73% want to upgrade home features in need of repair.