This is going to be a boom year for home improvement projects. Some homeowners may be unable to “trade up” so they are “fixing up” instead. Others are remodeling their properties so they sell for top dollar. And then there are new homeowners putting some elbow grease into their new digs.
What the Research Says
Researchers at the Joint Center for Housing Studies at Harvard University expect remodeling activity to hit $300 billion dollars this quarter. That’s a 6.2 percent anticipated increase from the third quarter of last year. During that quarter, homeowners spent $285.2 billion dollars to fix up their homes.
And Harvard researchers expect the trend to continue with an 8% increase in spending next year. That’s close to double the historical average of 4.9%.
They expect much of the remodeling revenue to come from pre-sale upgrades. Managing Direct of the Joint Center, Chris Herbert says, quote: “A healthier housing market, with rising house prices and increased sales activity, should translate into bigger gains for remodeling this year and next.”
He added: “As more homeowners are enticed to list their properties, we can expect increased remodeling and repair in preparation for sales, coupled with spending by the new owners who are looking to customize their homes to fit their needs.
The Joint Center researchers expect the “national remodeling market” to be close to a full recovery by the middle of next year, after the worst downturn on record. Research Analyst Abbe Will says: “Annual spending is set to reach $321 billion by then.” If you adjust for inflation, that’s slightly less than the last peak in 2006 before the housing crash.
Experts at John Burns Real Estate Consulting say the remodeling boom is also due to a lack of alternatives for people who might want to move but can’t find anything to buy. Todd Tomalak at the John Burns firm says, quote: “If you’re shopping for a home, the number of options out there are really low” and that homeowners are remodeling rather than moving.
The firm says the number of occupied homes on the market hit a record low this year. It says that 1.7% of occupied homes are currently on the market for sale. That’s well below the historical median of 2.3%. It says that surveys show people are staying put because of a lack of available homes to move into.
So homeowners are opting for upgrades.
Chief Economist for HomeAdviser, Brad Hunter, told the Wall Street Journal that home renovation has bounced back stronger than new home construction. He says renovation projects can be done “bit by bit” making them easier to launch. Plus, many homeowners have seen their equity increase substantially and are able to get home improvement loans.
On what features are people spending their money?
The John Burns team listed some of the most popular remodeling features. It found that spending is up 90% for decking among people who’ve recently moved into their homes.
For those who’ve been in their homes 4 to 9 years, spending is up 49% for, get this, a “man cave”. Perhaps more wives want football parties out of the kitchen!
And for people who’ve been in their homes 10 or more years, spending is up for new roofs and siding. That’s not as interesting as a “man cave” but probably a wise investment.
The Wall Street Journal also adds another reason for the home improvement trend. It says that America’s homes are getting older. According to census data analyzed by the John Burns teams, 65% of the nation’s housing is made up of homes that were built more than 30 years ago. That’s up from 47% in 1995.
And the home improvement trend isn’t slowing down. The John Burns team expects spending on home repairs and remodeling to continue “at a fast clip” for at least the next three years.
How does this affect you, as a real estate investor?
- It may become more difficult to find contractors
- It may be difficult to order supplies
- Both labor and materials may be more expensive
- Your Millennials could get off the couch and go to work in the construction industry!
- It could be a very good time to fix up your home and sell it for top dollar. You could rent for awhile until prices soften.