How to accomplish home improvement projects in a shaky economy

Spring is kickoff season for many kitchen remodels, bathroom updates and deck repairs, but recent economic turmoil may have homeowners questioning their home improvement plans.

Spending on home renovations is expected to slow this year because of factors such as declining home sales and values, rising interest rates, continuing inflation and rumblings of a coming recession, says Abbe Will, senior research associate with Harvard University’s Joint Center for Housing Studies.

As economic growth slows down, planning and prioritizing will be key to remodeling confidently. Here are five tips to help you remodel in an uncertain economy.

Start with an emergency fund

Even when the economy is doing well, it’s ideal to have an emergency fund before starting a remodel, says Eric Maldonado, a certified financial planner based in San Luis Obispo, California.

“What you’re trying to avoid is starting with nothing saved, taking out debt to afford these things and not really providing yourself with a smart foundation to start from,” he says.

A six-month fund is a good goal, he says, especially if you’re concerned about losing your job.

Related: We bought a falling down 100-year-old home. We tried to renovate, but things took a turn for the worse.

Narrow your financial goals

After your emergency fund is set, put remodeling on a short list of your financial priorities for the year and distribute your budget accordingly, Maldonado says.

For example, if your main goals are to pay off debt, contribute to your kids’ college funds and begin home improvement projects, determine how much each goal costs and how much you can afford to spend on them each month, he says.

“It’s kind of like putting the big rocks into the jar first,” he says.

This may mean slowing progress toward other financial goals, like early retirement or purchasing a new car.

Prioritize repairs and small updates

If high gas and grocery bills have left you with less to spend on home improvements this year, prioritize projects that have the potential to affect your finances the most, says Katherine Fox, a certified financial planner based in Portland, Oregon.

Fox recommends starting with fixes that would be costlier to delay, such as a leaking pipe. Then, consider updates that will save you money in the future, like new windows or insulation that can lower your utility bill.

Look for opportunities to mix “nice-to-haves” with “must-haves,” she says.

“Maybe you have something behind a wall that needs to be fixed, so you have to open up a wall, and then you have to repaint,” he said. “Maybe you take this opportunity to fix a need and get a want at the same time.”

Plus: How your homeowners insurance can bail you out in some surprising situations

Compare financing options

The Federal Reserve’s persistent interest rate hikes over the past year have led to raised rates on most financing options, so you’ll likely pay more interest on a new home improvement loan than you would have before.

Maldonado says home equity loans and lines of credit are typically the lowest-rate options, but he recommends comparing financing options to find the best rate and terms.

Most home equity and personal loans come in a lump sum and have fixed interest rates, so your monthly payment remains the same for the full term.

A home equity line of credit, or HELOC, provides more flexibility for large projects because you can draw on it as needed for up to about 10 years. However, HELOCs typically have variable rates, which means monthly payments can fluctuate.

Also read: Right and wrong way to use a HELOC

Consider delaying to save money

While prioritizing projects, decide whether you can delay any for a year or more. As fickle as the economy has been, there are signs that those who wait can pay less.

The pandemic-induced remodeling frenzy triggered a sharp increase in labor and materials costs that homeowners felt last year, according to a March 2023 report from Harvard’s Joint Center for Housing Studies. Cement, brick and plywood prices rose 20% to 25% between March 2020 and December 2022, the report found. Insulation material costs rose 34%. This year, materials may get cheaper, the report said.

Likewise, home improvement spending is expected to decline in early 2024 for the first time in more than a decade, according to the center’s Leading Indicator of Remodeling Activity, which measures and projects remodeling spending.

If you can tolerate the guest bathroom as it is or stomach that non-load-bearing wall for another year or two, you can get the work done at a discount, Fox says.

Just be sure you’re in a secure financial position and feel good about your employment prospects if you bet on a recession, he says.

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Annie Millerbernd writes for NerdWallet. Email: [email protected].

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