Home Remodeling – Why Is It So Popular?
Is it just me, or does it seem like there is suddenly construction everywhere? This building boom feels similar to the early part of the last boom years of 2000-2007. Turns out that what I was feeling really only relates to home remodeling, which is on track to hit $300 billion this year. This would break the previous record of $285 billion set in 2007.
The home remodeling market looks especially gangbusters if you compare it to new single-family home construction, which remains 40% below the levels of a decade ago.
The question I have is:
“Why are people remodeling instead of trading up?”
Of course this only applies if you have already answered the age old question of whether to buy or to rent your residence.
My research uncovered these answers:
- Homeowners are more reticent to borrow money even at rock-bottom interest rates. Remodeling has bounced back better than new home construction because projects can be done bit-by-bit, in phases as cash flow allows.
- It is difficult to buy a new home because the percentage of existing homes available for sale is near an all-time low, and buyers need to have very strong income, credit history, and down payments.
- Houses are getting older and need more maintenance. Can you say “depreciation”? About 65% of the nation’s housing stock is at least 30 years old. That is up from 47% that were that old in 1995.
- Traffic is awful and getting worse. Many folks prefer to buy an older home in a better location and fix it up rather than commute from the outskirts where they are likely to find newer homes.
All of this is good news if you are a home improvement contractor, architect, or interior designer. There is record spending on home remodeling. This is bad news if you are hoping to hire one of these folks. Contractors in many cities are booked many months in advance. A friend of mine has been remodeling her home in Phoenix for over a year. The contractor recently told her that he has to raise the price that he quoted her at the beginning of the job. She was outraged, but he said that he simply cannot get the sub-contractors to show up for the prices they were quoting a year ago.
Hmm? Maybe the popcorn ceiling and green shag carpet aren’t so bad.
What is the return on investment for home remodeling projects?
According to Remodeling Magazine’s Cost vs. Value Report, you’ll recoup an average of 64% of what you paid for last year’s renovation if you sell your house this year. Naturally, that varies based on which improvements you select, and the cost of the improvements compared to the value of your house, as well as how your house compares to the rest of your neighborhood. I thought realtor Ron Phipps said it well in an article on HGTV.com; installing a $10,000 stove in a $200,000 house, for example, “just doesn’t compute.” Nor does it make sense to update your kitchen if your house is the only one in the neighborhood with just one bathroom.
If you are thinking of braving the market of home remodeling with an eye toward return on investment, here are a couple of articles to begin your research:
10 Home Renovations That Offer the Best (and Worst) Return on Investment