On top of year-over-year increases in material costs and an ongoing trade labor shortage, supply chain issues and record-high inflation has home improvement spending higher than ever. But that dream home is still top of mind, and the longer you wait, the less it feels like it will ever happen. So you’re stuck asking yourself, is now the right time to renovate?
This article will dive into all the details about how inflation affects home improvement prices, which primary materials are impacted the most, and specific things you can do to save money during this turbulent time.
Why Are Renovation Costs So High?
High inflation occurs due to imbalances in supply and demand. During the height of the Covid-19 pandemic, the economy was shut down, and households stopped spending on nonessential goods like travel, entertainment, and dining. As a result, merchants had no choice but to raise prices.
Monetary policy also plays a role. The Federal Reserve has kept its rate (the federal fund rate) far lower than in recent years — even lower than the inflation rate. This extra-low rate drives up higher inflation. These factors leave us with limited supply, strong demand, and costs skyrocketing.
Labor Shortages & Supply Chain Issues
Since 2018, labor shortages have been an issue across the trade industry. The U.S. has found it harder to source labor of tradespeople needed for kitchen & bathroom remodels, flooring, and electrical work. As many tradespeople are nearing retirement age, there aren’t enough newcomers coming in to take their places.
Here’s what the numbers look like. From 2018 to 2020, there was a 3% decrease in construction laborers and an 11.8% decrease in carpet installers. Overall, construction job openings have increased from 282,000 to 405,000 from May 2020 to May 2022. This is only amplified by the fact that the supplies workers need to complete their jobs aren’t always available due to the current supply chain issues and material shortages.
How Much Have Materials Increased YoY?
Since the early pandemic, a number of products have seen steady increases in cost. Topping the list are:
- Gypsum products (i.e., ceiling tiles, plaster, and drywall)
- Steel mill products (e.g., framing and roofs)
- Paint and architectural coatings
- Plastic construction materials (e.g., pipes, seals, windows, doors)
- Insulation products
- Nuts, bolts, and tools
- Furniture and appliances
So what do these costs look like? Here’s a more detailed cost breakdown (source: Forbes), examining several of these products more specifically:
- Floor coverings: 7.2% year over year
- Window coverings: 16.2% year over year
- Furniture/bedding: 17% year over year
- Bedroom furniture: 13.7% year over year
- Clocks, lamps, and decorator items: 6.3% year over year
- Living room/kitchen/dining room furniture: 19.9% year over year
- Appliances: 8.5% year over year
Let’s Talk About Lumber Prices
In regard to rising material costs, you probably heard lumber mentioned more than once. That’s because, in the midst of increased demand, these supply chain issues, labor shortages, and high tariffs have made lumber availability and prices a top concern for renovation projects. Since April 2020, lumber, in particular, has experienced a 200% price increase.
It’s no secret that lumber is a big player in all types of renovation projects. These skyrocketing prices impact rehabs and construction of decks, home additions, fences, and many other larger building projects. And on top of higher costs, the shortage will also likely cause shipping delays which will impact the overall timeline of your project.
As you plan out your project materials with your contractor, ask about any areas where you could possibly use reclaimed wood instead. And visit our lumber guide to learn more about how RenoFi can help during the lumber shortage.
When Will Remodeling Prices Come Down?
The question on everyone’s mind is when will these prices come back down? If you’re considering a renovation project in the near future, you want to know if it’s worth it to wait. Well, according to the U.S. Bureau of Labor Statistics (BLS)’s consumer price index released in March, inflation rates for consumer items rose 7.9 percent between February 2021 to February 2022 — the most significant increase in more than 40 years.
And it’s not looking much better anytime soon. A recent Harvard University study predicts that through mid-2022, spending on home remodeling and maintenance will increase by 8.6%. But as more tradespeople join the workforce and more supplies become available in the following months, remodeling prices are likely to come back down.
In the meantime, there are several actionable steps you can take to help reduce costs for your remodeling project in the near future.
How Can I Reduce Remodeling Costs?
We’ve put together 7 steps to help reduce your remodeling costs during today’s high inflationary period:
Plan ahead! Account for increased wait times and additional costs as a result of delays or shortages so you can budget accordingly.
Get multiple bids. Before starting your project, shop around. Ask contractors how they feel delays or shortages will impact your specific project. If a contractor uses an inconsistently low price upfront, be wary — they’ll likely only upsell you with add-ons later.
Be as detailed as possible. When discussing the scope of work with a contractor, don’t leave out any details or info, so they can give you the most accurate estimate.
Stick with your plan. If you decide to make design changes halfway through a project, that will add costs and increase delays.
Focus on projects with a high ROI. Since prices are so high, prioritize projects like a kitchen remodel, flooring upgrades, and landscaping projects to maximize your investment.
DIY wisely. It’s tempting to take on some projects yourself, but remember, if it’s not done right and gets damaged or needs repairs, it’ll probably end up costing you more than if you had just hired a pro from the get-go.
Watch for sales. Look for deals on products and take advantage of price matching. Try to buy appliances secondhand if you can. See if your contractor can negotiate with suppliers to get a better deal on materials and appliances. Otherwise, ask retailers for freebies on anything from delivery, installation, removal of old appliances, as well as any extended warranties.
For more ways to save, check out our guide on cutting costs during a home renovation.
Should I Wait to Remodel?
This brings us to the big question — is now the right time to remodel?
It may seem like the conditions are not in your favor, but there are some interesting things for homeowners to keep in mind during this inflation period.
- Real estate is considered a “hard asset,” which holds value during inflationary periods. Investing in your home is always a good investment, and right now, it can even help hedge against a high-rate environment.
- Housing inventory is low, which makes prices unthinkable. Instead of getting stuck in a bidding war for a new home, more owners are now renovating to get the home they want in the neighborhood they love.
- 2020 was a record-breaking year for home improvements, according to researchers at Harvard University. The pandemic forced all of us to stay home, and now many Americans want a functional, comfortable, and livable home — despite the costs.
If you’re ready and eager to create a home you love, it’s a great time to take advantage of the benefits of a renovation loan to finance your home improvement projects. RenoFi Renovation Loans not only increase your borrowing power using the after-renovation value of your property, but they also offer lower interest rates and monthly payments than almost any alternative. Contact us today to learn how it works.