More people are buying homes than ever, especially millennials and Gen Yers, who accounted for 34% of homebuyers in 2017. And with more people becoming homeowners, the amount of home improvements is also on the rise. But a new study shows that homeowners are opting to pay for their increasing home improvements with credit cards.
Houzz and Synchrony Financial conducted a study and found that in 2017, 36.4% of spending on home renovations was paid for on credit cards. This is a drastic increase from 2011, when only 29.5% of home renovations were paid for with credit cards.
While 85% of survey respondents still said they used cash or their savings to pay for their renovation plans, only 15% reported securing a loan for remodeling. The expense of home improvement projects that were charged last year amounted to $141 billion.
“Aging housing stock, low inventory of homes for sale, and major demographic shifts are driving up demand for home improvements, so it is natural for consumers to look for advantageous financing methods in order to smooth out renovation spend over time,” explained Nino Sitchinava, principal economist at Houzz. “Based on our study, credit cards appear to be a competitive financing method for a large share of renovating homeowners, likely explaining the recent acceleration in credit usage.”
Among those renovating homeowners charging their credit cards, the average spending amounted to $10,000, with $1,500 to $4,800 being charged. When it comes to larger renovations, 28% of homeowners charge at least a part of their renovations to their card when they spend $50,000 or more. And today’s renovations can easily get pretty expensive, especially with four out of five homeowners choosing to replace major bathroom features like countertops, flooring, and showers during renovations.
Compared to older homeowners, millennials are driving the force behind using credit cards to pay for renovations. Of those between the ages of 25 and 34, 41% paid with credit cards, compared to 30% among those aged 55 and older.
And millennials are also less likely to pay off their balances right away. About 60% to 65% of millennials say they’re going to pay off their balances over time, while only 49% of those aged 55 and older say they will pay off their balances over time.
So because homeowners continue to spend more on renovations than previous years, financing options play a bigger role in sales than ever. If businesses offer financing options to make larger purchases more affordable, they may influence their buyers’ decisions.