Is now the right time to renovate? Many would-be homebuyers are struggling with the current housing market.
For the time being, it can be advantageous to remodel your existing home, which will provide a solid return on investment when you eventually sell. But recent home renovation cost increases have made these projects equally challenging.
Will renovation costs go down in 2023? Here’s what you need to know.
Current Trends in Renovation Costs
Harvard University’s Joint Center for Housing Studies recently published its quarterly report, "LIRA,” the Leading Indicator of Remodeling Activity.
The report predicts that renovation spending will drop roughly 14% from 2022 to 2023. The study projected that renovation spending would exceed $450 billion during the first quarter of 2023 but cool shortly thereafter, with owner-occupied housing stock to “grow only modestly” in 2023.
What does this mean for home remodeling costs?
The COVID-19 pandemic forced Americans to spend more time in their homes than ever before. And with the country locked down, it was easier to spend the vacation budget on one or more renovation projects.
According to a survey from Porch.com, a marketplace that connects homeowners to contractors, 75% of respondents had completed a home renovation project during the pandemic.
The Harvard study quotes Abbe Will, Associate Project Director of the Remodeling Futures Program, who says, “The massive pandemic-induced changes in housing and lifestyle decisions fueled remodeling and repair spending in 2020 and 2021, growing 23.8% over these two years compared with the 12.5% originally estimated.”
While restrictions have eased, America’s cooling housing market has prompted homeowners to continue their renovation projects. Retail sales of building materials have been on a steep upward trajectory since 2010, kicked into overdrive by the 2020 pandemic. However, the spike in demand has led to rising renovation costs.
Factors Influencing Renovation Costs
What’s keeping the cost of remodeling so high? Experts point to various factors, which include:
- The rising cost of building materials
- Supply chain issues creating a shortage of raw materials
- A labor shortage in the construction industry
According to The Associated Builders and Contractors, the construction industry needs about 546,000 additional workers to keep pace with current demands. With this labor shortage, homeowners may face delays in starting and completing home remodeling projects.
What’s more, the materials themselves have increased in price. The Bureau of Labor Statistics (BLS) reports that lumber alone increased by 89.7% during 2021. That trend appears to be continuing into 2023, with the BLS reporting that all construction material costs have risen by 3% from 2022 to 2023.
Predictions for Renovation Market in 2023
Despite these numbers, the renovation market remains strong. This is partly due to a cooling housing market, which has prompted existing homeowners to invest in what they currently own with the hope of trading up when they eventually sell.
That said, homeowners are adopting realistic hopes for home renovations in 2023, especially in light of rising material costs and issues with global supply chains.
For instance, rather than attempting to build additions that increase the home’s total footprint, owners are focusing on smaller cosmetic improvements that enhance the home’s comfort and resale value.
Additionally, the recent Inflation Reduction Act offers tax tax credits to owner-occupied homes that include energy-efficient products like windows and solar panels. This may encourage more homeowners to pursue renovations in 2023 to install these products.
Factors that May Influence Renovation Costs in 2023
How does all this translate to per-project costs? Will renovation prices go down in 2023? Experts aren’t entirely certain.
On the one hand, a slowdown in the housing market often means a reduction in material costs. But with inflation on the rise, these prices don’t appear likely to drop anytime soon.
The same factors that have historically led to higher costs are still present. Labor shortages and supply chain issues continue to challenge the construction industry, which may mean consumers will face high bills for home improvement projects.
Strategies for Managing Renovation Costs
Home renovations can drastically improve the look, feel, and value of your home. Before you start applying for renovation permits, however, you might consider a few strategies for keeping your home improvement costs to a minimum.
With rising material and labor costs, now might not be the best time to add on to your home. However, it could be the perfect time to complete small, necessary projects.
Focus on things like home repairs or repurposing your existing space. For example, giving your kitchen or bathroom a facelift can be an affordable way to remodel your home. It can also be an attractive selling point if you choose to sell.
Stick to Your Budget
Creating a workable budget starts with formulating a spending plan for you and your family, then setting aside money for your home renovation project.
Coordinate with your renovation contractor to ensure that you’re pursuing a project that suits your projected budget. Material costs can be hard to predict accurately, but at least you’ll stay within a safe spending window and complete a project you (and your wallet) can be happy with.
Find Affordable Financing
Some homeowners fund their renovation projects directly out of their savings accounts. But did you know you can also tap into your home's equity through a cash-out refinancing loan?
This type of loan allows you to convert the money you’ve invested in your house directly into cash, which you can then reinvest in a home improvement project.
Bottom Line: Will Renovation Costs Go Down in 2023?
While exact prices remain hard to predict, it’s unlikely that renovation costs will decrease significantly in 2023. Still, that doesn’t mean you can’t invest money in an immediate repair or small remodeling project.
If you’re looking for an affordable way to finance these renovations, contact CrossCountry Mortgage. Refinancing your home can give you the money you need to complete the project, and a home equity line of credit can provide a revolving financing solution for projects that lack a clear end date.