Gas prices, home prices, groceries prices, and lumber prices. They all have one thing in common. Over the past year, they have all increased significantly. Inflation is hovering around 8% at the time of this writing. Home prices and home remodeling prices as well have increased far more than that. What caused these prices to go so much higher? When, if ever, will they come back down to “normal?”
Everyone is tired of hearing it, and I really don’t want to say it, but the truth of the matter is there is a big pressure maker on the markets and in the construction industry as a whole: Supply Chain. Yes even after almost a full year of the Pandemic being somewhat behind us, the supply chain issues are still having an effect on building materials and therefore an effect on the cost of building homes and remodeling homes.
Interest rates are going higher and for many contractors or homeowners who want to finance the project, that cost also increases the overall cost of the project. And while you may feel the price at the pump, many of the products you are putting into your home are as well. The trucks that those products come on are also having to fill up with gas or diesel, and the tires they roll on are petroleum-based, not to mention many different other applications for using natural gas in various trades such as torches for plumbing and welding.
All of these plus the shortage of skilled labor which adds a premium to the cost of labor add up and are keeping prices high currently. Will they come back down? Maybe. Possibly a little, but most likely it will be a slight dip and then a resurgence back. There are too many factors l that would have to correct downward to allow prices to drop to pre-pandemic levels. And historically housing (and remodeling) prices go up, rarely reverse greatly, and when they do it is for a short period and then they go back up.
The demand for housing, (especially in my home state of California) is still very high. The demand has softened slightly only because of interest rates shooting up from the 3’s to at the time of this writing over 7% in the past 11 months. But the demand for home renovations/remodels has not. In fact, most homeowners who were looking to sell their homes to purchase elsewhere are now looking around to see what they can do to make their current homes more comfortable.
“A recent survey conducted by the U.S. News and World Reports’ 360 Reviews has found that 83% of recent home buyers who purchased a home in 2021 or 2022 have experienced homeowner anxiety since buying it and 69% have experienced buyers remorse.”- Source Builder by Leah Draffen- Posted on November 2, 2022.
So what is a homeowner to do? According to one Forbes Home article by Lexie Pelchen dated September 26, 2022, “focus on completing projects with high ROI (Return On Investment), so the money you’re putting into your home, you can hopefully get back. Projects that are almost always worth your money include kitchen remodels, flooring upgrades, and landscaping projects.
“Our advice to our clients is unless the property is an investment property, never do a remodel unless you plan on living in the home for at least two years. This gives you the opportunity to enjoy the new space you have created. That way, if you don’t get a large ROI on the resale price of the home, at least you got to enjoy the benefits of making the space your own,” Al Aldrete CEO of Black Lab Home Repairs, Inc. said when asked what advice he gives his clients. “Remodels can be stressful and costly as it is. Adding on the burden of the stress of whether or not you time the housing market correctly doesn’t make the most sense for our clients. They are more interested in investing to create a livable space for their families and an inviting space for their friends to come to.” Aldrete added.
So does it make sense to wait it out for prices to drop? Not really, again, historically housing prices don’t drop significantly, and we aren’t seeing the same economic conditions as the 2006 housing bubble that would suggest housing prices are going to implode for a long duration. It does look like inflation may have peaked back in September of 2022. But the Unemployment rate is still historically low which means there are still inflationary pressures on the monetary system. So the best time to do a remodel, is still right now, as long as you are going to be able to enjoy it for two years or more.