It seems we talk about remodeling projects forever and torment ourselves bingeing HGTV and browsing Houzz. We tell our spouses we aren’t quite ready to spend (or borrow) the money. Besides, we deserve that big vacation this year.
During the Great Recession, that strategy may have made sense. According to an analysis by Metrostudy, remodeling costs actually declined for several years during the housing slump. But the opposite has been true for the past few years. The latest annual Remodeling Cost vs. Value Report showed that projects costs have been increasing steadily, and the trend is only expected to accelerate. Fortunately, home values are going up too.
Study Suggests Rising Remodeling Costs
The Report noted, “Nationally, the average payback for the 24 projects that we’ve tracked throughout this decade has ranged between 58% and 66%. Costs have risen each of the past four years, following a time in which the Great Recession caused prices to fall. Values have seen bigger shifts, rising the past two years after having declined in three of the previous four.”
Building materials prices have been rising steadily during the economic recovery driven by higher demand and now import tariffs. For example, more than a third of the lumber used in US construction comes from Canada. Since the grace period for the US-Canada Softwood Lumber Agreement expired last October, prices have risen each month. A US Commerce Department decision on anti-dumping penalties due April 25 was just pushed back to June. With some fearing the combined penalties and tariffs on Canadian lumber could reach 45 percent, the Canadians are said to be evaluating shifting exports away from the United States and to China. At this point, the just announced tariff is up over 20%.
Remodeling activity in the greater Twin Cities is robust. Reputable contractors who survived the downturn are busy. Skilled construction labor is in short supply and pushing labor costs higher. Meanwhile, interest rates for home equity loans also can be expected to rise in the years ahead.
“I don’t believe in high-pressure sales tactics. Never have. But the facts cannot be dismissed,” APEX President John “JB” Biancini observed. “Remodeling will cost more next year than it does this year and this year costs more than last year. The better value is now, not two years down the road.”
Use It or Lose It
While rising costs argue for remodeling sooner rather than later, the most important incentive is the ability to enjoy the upgrades sooner. How do you put a value on your kids and their friends wanting to hang out at your house because you remodeled the basement. Or wanting to entertain friends and family more because you have a wonderful open floor plan kitchen. Or the pride that comes from an exterior facelift and sheltered entry addition that neighbors adore (and envy)?
“With the exception of house flippers who are only in it for the money, most people remodel their homes to improve their quality of life. The investment potential is important but secondary,” JB said. “The main factor that would lead to an over improvement is if you don’t remain in the home long enough to enjoy it.”
Boomers Driving Discretionary Remodeling
Interestingly, a recent Harvard Joint Center for Housing Studies’ Demographic Change and the Remodeling Outlook report predicts record remodeling spending, largely by baby boomers and much more on discretionary rather than repair projects. It suggests nearly 33 percent grow in remodeling spending among homeowners age 55 and over, some 56 percent of the overall remodeling market, by 2025. Discretionary projects, which dipped to one-third of spending during the recession, are expected to drive the remodeling market going forward.