Insight Deep Dive: CE Transact data explores how rising mortgage rates in the US and the UK are impacting home improvement spend.

As Central Banks keep interest rates high to curb inflation, mortgage rates in both the US and UK have reached levels not seen for many years.  With fewer consumers able to afford a new home, what has the impact been on Home Improvement spend?  Surprisingly, the reaction has been very different in the two countries.  While US DIYers are spending less on big projects with turnover down, UK DIYers are actually spending more to make their current homes more livable.

In the US, mortgage rates have been on a steady rise since the beginning of 2022.  Although Home Improvement spend growth saw a brief y/y spike over the summer as interest rates plateaued, it decelerated sharply in fall as interest rates crossed above 6.1% in September and rose further to 6.9% in October.

In the UK, rising mortgage rates throughout 2022 appeared to actually correlate with acceleration in y/y Home Improvement spend growth, although for the most part this was a case of trends becoming less negative.  This is in contrast to decelerating but still positive spend growth in the US.

It may be that in the US, high rates mean fewer sellers sprucing up their homes prior to listing and fewer new buyers renovating after purchase while in the UK, high rates keeping consumers “stuck” in their homes lead them to want more improvements.

Mortgage Rate Impact on US Home Improvement Spend

Note:  USD; mortgage rates are 30-Year Fixed Rate Mortgage Average in the United States, Not Seasonally Adjusted
Source:  Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, August 18, 2023

Mortgage Rate Impact on UK Home Improvement Spend

Note:  GBP; mortgage rates are monthly interest rate of UK monetary financial institutions (excl. Central Bank) sterling 2 year (85% LTV) fixed rate mortgage to households (in percent) not seasonally adjusted
Source: Bank of England 

The disparity in behavior can be seen not only in total spend, but also in project size, using how much an individual spends on Home Improvement over the course of a quarter as a proxy for project size.  In the US, year over year growth in project size has dropped precipitously since the end of last year, again implying fewer major renovations and more small upkeep projects for homeowners forced to stay put.  In the UK, y/y growth in project size has actually increased since the beginning of 2022, again supporting the hypothesis that prospective homeowners across the pond are trying to make more from what they have.

Home Improvement Project Size

Note: Local currency

Not all brands are suffering from these trends.  But which brands are growing puts further emphasis on regional differences in mortgage rate reactions.  In the US, the highest growth brands are for small home improvement touch-ups like a new coat of paint or set of windows.  In the UK, the highest growth brands provide the elements for major projects like bathroom and kitchen renovations.

Top Brand Spend Growth

Note:  Local Currency; 91 days ended 8/12/2023 vs. prior year period; top 10 y/y spend growth for each geography

All eyes are on the Fed for the next wave of housing market changes.  But for Home Improvement investors, all eyes should be on CE for how individual companies are faring as high mortgage rates put pressure on housing across the globe.

Consumer Edge is the leading provider of alternative data for consumer spending behavior, and the only provider of global revenue signals. If you’d like to benefit from using Transact US or other products for restaurants, retail, and other industry data year-round to track trends and dynamics like these, reach out to insights@consumeredge.com.

Stacie Rabinowitz is the VP of Product Research at Consumer Edge. Explore more of her insights here and follow her on LinkedIn.