As 2018 dawns, there’s no question the real estate market is, well, a little crazy. Home values are surging, money is relatively cheap, and inventory is tighter than tight.
That’s all downright welcome news for owners who’ve been considering remodeling.
“Remodeling remains a very attractive option to increase your home’s value,” says Javier Vivas, director of economic research for realtor.com®. And that can be a smart move whether you’re prepping your place for sale, or giving it a refresh for the long haul.
“The big variable here is location,” says Vivas. “If you’re happy with your neighborhood and your place has some value, there’s an advantage over trying to move—because there may not be somewhere else for you to move to in your price range, or you may have to make a bigger cost jump than you would if you were simply remodeling.”
Still wondering whether to grab a sledgehammer and get swinging? Here’s the thing: The longer you wait, the more expensive renovating or remodeling gets. If you’ve been on the fence, this may be the year to get off it. Better yet, rebuild it! Here’s why you should get moving now.
1. You (likely) have more cash
Consumer confidence is high, unemployment is low, and incomes are growing—which means you likely have more money in your pocket. Plus, if you’re a homeowner, chances are good that your home equity has increased along with skyrocketing home prices over the past few years.
So when it comes to spending cash on all those get-to-it-later home projects, you’re probably in good standing.
In fact, the remodeling market is expected to grow 7% this year, says Robert Dietz, chief economist with the National Association of Home Builders.
“This market should be sustained by the fact that homeowners are remaining in their homes longer,” Dietz says.
2. Interest rates for building loans are low
Interest rates for home equity lines of credit—which offer a flexible way of obtaining funds to pay for things such as home improvements—are still historically low. And even though interest paid on HELOCs is no longer deductible under the new tax reform legislation, experts say the building loans remain a good deal.
“Interest rates are still quite friendly but will likely go up this year—and lenders are competing for loan business,” says Tom Miller, president of the National Association of the Remodeling Industry, who also owns a remodeling company in the Pacific Northwest.
Simply put: Take advantage of those low rates now before more increases hit.
3. It could be cheaper than buying a new home
If you live in a high-cost metro area and already have a foothold in the real estate market, remodeling your existing place could be cheaper than buying a new one. Maybe a lot cheaper (unless, of course, you were planning on downsizing).
There are a lot of factors to consider, however: How much equity you have in your place, what your current mortgage rate is, and whether major renovations are even feasible. But experts agree that, in many cases, the current seller’s market makes renovating a more palatable option than buying.
“We think remodeling will be a major trend in 2018, because we’ve seen prices grow so much that a lot of potential buyers are being priced out of their own markets,” Vivas says. “And that’s where you see a turn toward giving up on trading up and buying again and considering other options like renovating.”
This is especially true in expensive markets such as New York and California. Plus, these high-cost areas are expected to feel the heaviest burden of the tax reform provisions that limit mortgage interest deductions and eliminate the deduction for state and local property taxes.
“Some of the tax benefits linked with purchasing will be sidelined or diluted,” Dietz says.
4. Costs will go up the longer you wait
The construction industry is facing a major shortage of skilled laborers and rising materials costs, and there’s little indication this trend will reverse anytime in the future. This higher demand translates into higher pay scales for available, qualified workers—and those costs ultimately get passed along to you, the consumer. The situation is expected to get worse over time.
“Labor costs will continue to escalate as remodelers pay up to get and keep construction trades on the jobs,” says Fred Ulreich, chief executive officer of the NARI.
Furthermore, the multibillion-dollar cleanups of Hurricanes Harvey and Irma drove materials prices even higher—and the effects are expected to last into 2018. The NARI predicts materials costs will rise about 5% this year, especially for supplies such as lumber, drywall, and concrete.
What’s more? Labor shortages will not be resolved overnight, Miller says. For the would-be remodeler, that means your costs will likely go up the longer you wait.
“There are no signs that remodeling demand or costs will taper off over the next several years, but will continue to rise,” Miller says. “Holding off on a project—if you can find a reputable remodeler available now— will only cost you more next year.”