The Remodeling Boom
NAHB’s Mid-Year Housing Market Outlook
Guest:
Dr. Robert Dietz,
National Association of Home Builders
Chief Economist
Episode 52 | The Construction Lending Podcast
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Remodeling is about to become more than half of all residential construction in America — and NAHB Chief Economist Dr. Robert Dietz has the data behind it. In this mid-year housing market outlook, Dr. Dietz breaks down the forces powering renovation’s rise from a third of construction activity in 2007 to 45% today: more than $35 trillion in homeowner equity, a housing stock averaging over 40 years old, and a mortgage rate lock-in effect keeping homeowners in place and reinvesting in the homes they have. Construction lenders will find a practical map of where renovation lending demand is growing — including the fastest-growing remodeling markets in the Northeast and Midwest — plus the rise of teardown construction, the outlook for HELOC and renovation loan demand as rates fall, the risks that could slow the boom, and a first look at NAHB’s new quarterly state-level remodeling estimates.
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Questions Answered
Remodeling now accounts for 45% of residential construction activity — up from roughly a third in 2007 — and NAHB forecasts it will exceed 50% within the next five to seven years, with the sector growing about 30% over the next decade.
The mortgage rate lock-in effect: homeowners won’t trade a low pandemic-era rate for a doubled payment, so they’re reinvesting in the homes they own. With over $35 trillion in home equity, they have the means to do it.
Kitchen and bath remodels still make up about half of activity, but whole-house remodels, additions, aging-in-place improvements, and energy efficiency and resiliency upgrades on older homes are the fastest-growing categories.
The Northeast (Connecticut, New Jersey) and the Midwest — Ohio and Michigan are among the fastest-growing remodeling markets, driven by the country’s oldest housing stock and rising household net worth.
Yes — acquisition-plus-rehab loans, improvement lending, and teardown financing are a rising share of transactions.
About 7% of single-family housing starts today are teardowns, and that share is expected to climb above 10% — including commercial-to-residential conversions like turning old shopping malls into walkable urban villages.
The skilled labor shortage is the number one risk — remodelers are last in line for workers — followed by regulatory burdens like setback requirements that can block renovation permits on older homes entirely.
A federal housing bill with attainable-supply provisions and zoning-reform incentives is expected to become law, but the decisive changes to zoning and land development will happen at the state and local level.
About a third of residential construction firms use AI today, mostly for research and marketing. Dr. Dietz rejects the “AI jobs apocalypse” narrative — he expects AI-driven productivity to lift incomes above trend, helping close a price-to-income ratio that has stretched from its historic 3-to-1 to 5-to-1.
A first-of-its-kind quarterly data product mapping remodeling spend growth state by state — a heat map for renovation activity, designed to become the remodeling counterpart to the monthly housing starts report.
Episode Recap
The Remodeling Boom: NAHB’s Mid-Year Outlook for Construction Lenders
Remodeling is on track to become more than half of all residential construction activity in America. That’s the headline finding from Dr. Robert Dietz, Chief Economist at the National Association of Home Builders (NAHB), in his mid-year return to the podcast — and it reframes where construction lenders should be looking for growth.
From One-Third to More Than Half
In 2007, remodeling made up roughly a third of residential construction activity. Today it’s 45%, and NAHB’s 10-year forecast projects 30% growth for the sector — enough to push remodeling above 50% within the next five to seven years. Even as the broader housing market slowed through 2025 and 2026, the remodeling market on a cash-flow basis is 8% larger than a year ago.
Three forces are converging. Homeowners hold more than $35 trillion in home equity — what Dr. Dietz calls the raw fuel of renovation demand. The housing stock is aging, with the typical owner-occupied home now more than 40 years old, and considerably older across the Midwest and Northeast. And people are simply moving less.
The Lock-In Effect Rewrites the Rules
The mortgage rate lock-in effect is doing something unusual to the market. Traditional forecasting models say that when existing home sales decline, remodeling suffers. Right now, the opposite is happening: homeowners who can’t justify trading a low pandemic-era rate for a doubled payment are reinvesting in the homes they already own. Remodelers report deep backlogs, and their market sentiment has stayed positive through the entire post-COVID period — a sharp contrast to the swings experienced by single-family and apartment builders.
Kitchen and bath work still accounts for about half of activity, but the post-COVID growth has come from bigger projects: whole-house remodels, additions where zoning permits them, energy and resiliency upgrades on homes 60 to 100 years old, and aging-in-place improvements as retirees increasingly stay put rather than relocate.
Teardowns and the New Urban Village
Remodeling demand is spilling into traditional home building through teardown construction. About 7% of single-family starts today are teardowns, a share Dr. Dietz expects to exceed 10% in the coming years. Most are one-for-one replacements, though policies like subdivision by right are letting some lots yield two homes where one stood.
The trend extends beyond residential-to-residential: some of the most compelling projects convert dying commercial real estate into housing — old shopping malls rebuilt as walkable urban villages, with townhouses and low-rise multifamily surrounding a core of groceries, libraries, and entertainment.
Where Lenders Should Look
The opportunity is geographic. More than half of single-family home building still happens in the South, where little will change. But in the Northeast and Midwest — markets with older housing stock, older households, and higher net worth — remodeling demand is accelerating. Connecticut, New Jersey, Ohio, and Michigan are among the fastest-growing remodeling markets in the country.
Renovation lending products, acquisition-plus-rehab loans, and teardown financing represent a rising share of transactions. And as mortgage rates trend toward 6% over the next two to three years, NAHB expects an uptick in HELOC-style lending alongside increased demand for home purchases, construction, and improvement spending.
The risks: the skilled labor shortage tops the list — remodelers are last in line for workers and must be more selective because they work inside occupied homes — followed by regulatory costs, where even modest increases can kill a small firm’s project. Zoning reaches into remodeling directly: setback requirements written decades after older homes were built can block renovation permits outright.
Policy, Productivity, and the Decade Ahead
A federal housing bill with attainable-supply provisions, manufactured housing changes, and zoning-reform incentives is expected to become law this week — but Dr. Dietz is clear the decisive changes will come at the state and local level, where a bipartisan consensus is forming around medium-density, walkable housing.
The affordability stakes are stark: the historic price-to-income ratio of 3-to-1 has stretched to 5-to-1. Dr. Dietz’s answer isn’t falling prices — it’s rising incomes, powered by an AI productivity boom. He rejects the “AI jobs apocalypse” narrative, noting there’s no historical precedent for a positive productivity shock producing mass structural unemployment, and expects above-trend income growth over the next decade. Construction needs the boost badly: since the early 1990s the average U.S. worker has become 50% more productive; construction workers, just 19%.
A New Data Product for a Data-Poor Sector
The most practical announcement for lenders: NAHB has launched its first state-level estimates of remodeling spend, updated quarterly — a heat map of renovation growth in a sector spread across more than 120,000 decentralized firms. The initial release confirmed the Midwest’s momentum, and NAHB plans to expand toward the same depth of detail available for single-family construction: project types, financing, and firm-level activity.
The Bottom Line
2026 feels a lot like 2025, with 2027 shaping up as a stabilization year — but the big narratives hold: the country is underbuilt, builders and remodelers are hunting for financing, and skilled labor limits how fast anything changes. For lenders, the message is simple: the remodeling market is where the growth is.
Enjoyed this episode? Leave a quick rating on Apple Podcasts or Spotify — it’s the fastest way to help other construction lending professionals find the show — and subscribe to the Housing Digest newsletter for weekly market data like this.
Social Links
LinkedIn: https://www.linkedin.com/in/robertddietz/
Eye on Housing (NAHB Economics Blog): https://eyeonhousing.org
NAHB Housing Economics: https://www.nahb.org/news-and-economics/housing-economics
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