Home renovation

Growth-hungry banks see opportunity in home improvement boom

As Americans continue to spend heavily on home improvement projects, banks are seizing the opportunity – both by embracing organic loan growth and acquiring lenders focused on the renovation niche.

In recent earnings calls, bankers expressed optimism that consumers will continue to borrow to upgrade their homes, which could give the lackluster consumer loan books a boost. Many American adults continue to spend more time at home as their employers stick to pandemic-induced work patterns.

Goldman Sachs, Truist Financial and Regions Financial have all announced deals to buy home improvement-focused lenders this year.

Truist’s $2 Billion acquisition of Service Finance Co., based in Florida, is a reflection of the bank “skating where the puck goes” and exploiting what the bank believes will be a long phase of growth for the sector, CEO William Rogers told analysts on Friday. .

Home renovation activity is expected to remain high at least through mid-2022, Harvard University’s Joint Center for Housing Studies said in a study this summer. Although activity may fall in winter, it is expected to remain above pre-pandemic levels and reach a new high of 8.6% annual growth in the second quarter of 2022, according to the study.

“I don’t really see it going down anytime soon,” said Vince Passione, founder and CEO of LendKey, which works with banks and credit unions to provide home improvement loans.

Recent trends in the housing market have helped boost renovation activity as some homeowners make repairs to prepare for a sale, and others decide to renovate rather than buy a more expensive new home.

Rising home values ​​have also allowed homeowners to tap into their capital to finance renovation projects, said Rutger van Faassen, retail banking analyst at consultancy Curinos.

Growing demand has resulted in a backlog and increased project costs, as contractors struggle to secure needed supplies and hire workers, van Faassen said. After months of planning, renovations to van Faassen’s Brooklyn apartment got more expensive and finally began last week.

Synchrony Financial, a $92 billion asset bank with roots in General Electric appliance financing, has been among the beneficiaries of the home improvement boom.

Synchrony, based in Stamford, Conn., offers credit cards and promotional financing on behalf of retailers like Lowe’s and Ashley HomeStore, but it also lends through a network of more than 60,000 merchants and has a credit specially designed for home-related purchases.

Purchases in the company’s home and auto division rose 10.4% in the third quarter from a year ago, with home-related purchases driving much of the growth. In an interview, Synchrony’s chief financial officer, Brian Wenzel, said the bank had “not seen any pullback” in demand. He pointed to the company’s investments in technology as a driver of growth.

Entrepreneurs can now close sales entirely through their iPads or through customer phones, eliminating the need for paperwork. “It makes the process incredibly easy,” Wenzel said.

Asked about purchases of home improvement lenders by competing banks, Wenzel said Synchrony’s technological capabilities and existing network of contractors meant an acquisition “wasn’t as compelling”.

The three recent banking deals for home improvement lenders were driven in part by sellers’ point-of-sale lending technology and their existing networks of contractors.

Daryl Bible, chief financial officer of Charlotte, North Carolina-based Truist, recently told analysts that his bank’s impending acquisition of Service Finance would boost its point-of-sale business and respond to changing consumer preferences.

Waiting for Goldman Sachs OK for fintech GreenSky “reinforces our efforts to build the consumer banking platform of the future,” said David Solomon, chairman and CEO of Goldman.

GreenSky’s relationships with more than 10,000 merchants were “extremely valuable,” Solomon said during Goldman’s latest earnings call.

“We think it would have taken us almost 10 years to develop a similar network,” Solomon said. He added that the deal will bring “very, very high quality” borrowers – landlords with higher credit ratings – into the bank’s ecosystem.

Regions based in Birmingham, Alabama, said on October 1 that they had closed their acquisition of home improvement lender EnerBank USA. The agreement will help the regions provide “new options for financing the improvements people make to their homes,” Scott Peters, head of consumer banking for the regions, said in a press release.

Banks’ recent interest in firms that focus on home improvement loans reflects borrowers’ desire to arrange financing immediately, said Curinos analyst van Faassen. He said homeowners “don’t have the patience anymore” to wait for banks to process more traditional loans. This is especially true for home equity loans, where processing can take several weeks, he added.

“People aren’t prepared to wait that long,” van Faassen said. “We are now used to Amazon delivering things to us the next day.”