We’ve got money to lend!

For many years now, we’ve described the homeowners most likely to make energy efficiency home improvements as being middle- to upper-middle income, generally earning over $50,000 a year. The people most likely to recognize that they need home improvements, however, are often the ones who don’t have the discretionary money to act. So for many years we’ve also been saying that utilities and contractors need to incorporate financing into their energy efficiency home improvement programs to make these improvements available to more people who need/want them.

But recently I’ve also been involved with two clients who have a surplus of money to lend and can’t seem to get homeowners to take out loans to make energy efficiency home improvements.  Why?

The first, and most obvious reason is the grindingly slow economic “recovery” that’s not being felt by many Americans. According to a recent article in The Washington Times, the recovery that began after the “official” end of the recession (three years ago) is the weakest one since The Great Depression. Unemployment remains at over 8% and job growth has been incredibly slow.^[1]  In short, Americans aren’t buying like they used to and most are paying down debt, rather than taking more on.

Second, most of these HUD/FHA sponsored Title 1 loan programs have a minimum value greater than the cost of most individual home improvements, and most require home equity. The housing market is still far from healthy and housing prices remain depressed. Bloomberg reported recently that about 15.3 million homeowners, or almost 31% of mortgage holders, had negative equity as of June 30, 2012.^[2]

Third, most homeowners just aren’t aware of the programs.

Obviously, making homeowners aware of the availability of financing is step one, but targeting is critical. Lenders, contractors and utilities should focus on homes that are in the 15–25 year “replacement sweet spot”, specifically targeting homeowners with equity – those who purchased before the peak of the pricing “bubble.”

Convincing homeowners who are “stuck” in their homes of the right choice is also critical. Many of those folks are thinking about making the best out of a prolonged negative situation – either by making the kitchen and bath improvements that have (historically) helped to improve resale value, or by choosing energy efficiency improvements that will help them reduce monthly costs. Marketers need to encourage homeowners to think pragmatically and make the latter, more certain, ROI decision for improvements geared toward increasing comfort and performance.

Finally, contractors, lenders and utilities should be “bundling” multiple improvements that will more likely meet minimum requirements for home improvement loans and more effectively reduce home energy consumption.

There’s money to lend! We’ve just got to get it into the right hands.