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A tight, expensive housing market has more homeowners staying put — upgrading and enlarging their current homes rather than fighting to afford a new one. The costs to remodel, however, are growing.
More than half (58 percent) of homeowners surveyed by Houzz, a home design and remodeling website, upgraded their homes last year at a median spending of $15,000. The amount homeowners spent has not changed in the past three years, but the cost of renovations has, thanks to a shortage of labor and rising prices for materials.
“The implications for the homeowners are pretty severe,” said Nino Sitchinava, principal economist at Houzz, who added that the project backlog in some parts of the country is upwards of three to four months. “And the majority of the remodelers on Houzz tell us that once a construction project starts, there is significant delay in the timeline for the completion. That combined with the rising costs of labor and more recently products and materials, [so] we are looking at rising prices for home renovation services.”
The bigger the project, the bigger the increase in how much people are willing to spend, especially on projects they believe will increase their home’s resale value. Homeowners remodeling their kitchens spent 10 percent more than in 2016, and for major kitchen remodels (more than 200 square feet), the spending increased from a $30,000 median renovation in 2016 to $33,000 in 2017.
As costs rise, more people are setting strict budgets for their projects. More than three-quarters of those surveyed had an initial budget before starting their renovation in 2017 compared with 69 percent in 2015. Still, 19 percent went over that budget last year, compared with 16 percent who overspent in 2015.
While kitchens and bathrooms continue to be the most popular upgrades, master bedroom/bathroom suites moved up to the number three spot, overtaking living/family room remodels. The median amount spent on a master bedroom remodel increased 33 percent ($2,000 in 2017 versus $1,500 in 2016). Spending on living/family rooms was unchanged at $3,000.
“It's kind of your own vacation in your own home when you go home from your busy day and you want to relax you can go into your spa like bathroom,” said Kerry Ann Rodriguez, director of project development with Case Architects & Remodelers in the Washington metropolitan area.
Resale value is important to most homeowners, both new and long-term owners, and that may be part of why the master bedroom suite is now more popular.
“You will get more bang for the buck and a better return when you sell to have that full master suite,” said Rodriguez. “Buyers are really looking for that. They want the double sink and bath even if people don't take baths.”
Upgrades to the home’s exterior and interior systems have also increased, as current owners turn an eye toward preventative upgrades, rather than discretionary, or comfort-enhancing features.
“Roofing is up, siding, windows and doors, exterior doors as well as some of the more trendy home systems,” said Sitchinava.
New homeowners usually drive remodeling, as they personalize and upgrade their spaces for the first time, but in today’s market, current homeowners are leading the charge. In Houzz’s survey, 57 percent of remodelers had lived in their homes for more than six years. Just 13 percent had bought the home in 2017.
Not surprising, therefore, that there was a big jump in upgrades to home security and home automation. Smart tech installations, such as thermostats, electronics and lights, grew by 18 percent over the last two years. The biggest gains in security and automation were among long-term owners, “who appear to be catching up to more tech-savvy recent buyers,” according to the report.
While newer homeowners may not be driving remodeling, they are driving a new trend in financing remodels, specifically, using credit cards. Cash continues to be the most popular method of payment to contractors, but an increasing number of homeowners are turning to plastic.
“Part of that drive to use credit cards is actually driven by the younger population,” said Sitchinava “Younger populations are 50 percent more likely to rely on credit cards to fund their renovations. They just don't have the financing and the home equity at their disposal to tap into.”
Even as home prices rise, giving current homeowners more equity to tap, just 11 percent used that equity last year to fund remodeling projects, while 33 percent used credit cards, according to Houzz.
Despite higher costs, home remodeling is expected to stay strong for the foreseeable future, especially given how competitive the current housing market is.
“People get frustrated looking for a house in the right neighborhood in the right price point, and it does make more sense to just customize your own home,” added Rodriguez.
Annual growth in homeowner remodeling expenditure will remain above 7 percent throughout this year and into the first quarter of 2019, according to a recent report from Harvard’s Joint Center for Housing Studies.
“Strengthening employment conditions and rising home values are encouraging homeowners to make greater investments in their homes,” said Chris Herbert, Managing Director of JCHS in a release. “Upward trends in retail sales of building materials and the growing number of remodeling permits indicate that homeowners are doing more—and larger—improvement projects.”
CNBC producer Lisa Rizzolo contributed to this report