Home remodeling in 2022 requires patience and flexibility
The pandemic has wreaked specific havoc on home renovation. Growing demand for construction projects has been met with material and labor shortages, creating a home improvement bottleneck that has lasted through 2022.
“The pandemic has thrown a really big wrench on everything, but housing in particular,” says Abbe Will, associate project director of the Remodeling Futures Program at Harvard’s Joint Center for Housing Studies.
Renovating could be as expensive and stressful a process this year as it was in 2021. With the Federal Reserve expected to raise the federal funds rate many times this year—a move that’s driving up interest rates—financing a renovation can seem even less appealing.
Here’s what tough renovation conditions mean for renovators this season and how to prepare for them.
Expect supplies to stay low
This year, it may be difficult to find a contractor and materials for a renovation. Once you do, both will likely cost more than before the pandemic.
Workers and materials are scarce, which plays a significant role in driving up costs. Neither issue is expected to be resolved this year, says Paul Emrath, vice president of survey and housing policy research at the National Association of Home Builders.
The construction industry has a labor problem that predates the pandemic, Emrath says, but it was exacerbated when workers quit or fell ill and unable to work on construction sites in the past two last years. This means that even if people return to work, there will still likely be too few construction workers.
Building materials faced a new problem during the pandemic. Supply chain issues that have impacted many industries have created a unprecedented shortage of materials in which all building materials were in short supply at once, says Emrath.
Material shortages are the main driver of higher renovation costs. Mitigating supply chain issues could reduce costs; however, “nobody really expects that to happen for materials in 2022,” he says.
Landlord demand may decline
The pandemic has triggered “phenomenal demand” for renovation projects, which has increased every quarter since the end of 2020, Will says.
Last year, renovation spending rose 9% year-over-year, and it’s expected to rise 17% this year, according to Will. The historical average annual growth is around 5%. Will attributes the growth to many factors, including employees working from home, delayed projects from 2020, aging homes, the nesting of new owners and preparedness for natural disasters.
But spending may grow more slowly towards the end of the year as equity borrowing becomes a less attractive option. Home values are expected to rise steadily rather than skyrocket, meaning homeowners will not accumulate equity as quickly as before. At the same time, Will says expected Fed rate hikes will raise rates for home equity loans and lines of credit.
“Higher interest rates for homeowners who want to tap into their home equity or use other methods of financing could reduce some of that demand, which would then relieve some of that pressure,” Will said. .
How to plan your renovation this season
Neither Will nor Emrath sees any reason to put off a renovation in the hope that it will be easier or cheaper next year. In fact, Emrath says rising rates could be a signal to start a renovation sooner rather than later if you plan to fund it.
Will’s advice to homeowners renovating: Be flexible with materials and your schedule.
“Have patience working with contractors and stick to their schedule, and be as flexible as possible when they can start working with you,” she says.
A delayed project could be an opportunity to put your renovation savings to work. Paying cash for discretionary, non-emergency purchases is a better alternative than going into debt for them, says Jay Zigmont, a Mississippi-based certified financial planner. It is also an interest-free financing option.
If you choose to finance, look for the cheapest borrowing optionsaid Zigmont.
Currently, it can still be equity financing, which often has single-digit annual percentage rates. A home equity line of credit could work well for a project with a changing schedule because you can withdraw money as you need it.
Personal loans are available for homeowners with little or no equity. Rates range between 6% and 36% – higher than most equity financing, but lower than credit cards for those with strong credit. Loan amounts for qualified borrowers can be up to $100,000.
Zigmont recommends upgrading piecemeal if you want to see progress this year but don’t have enough cash to pay for a full overhaul. Start with what excites you most – new appliances or tile, for example – and plan to save for the rest.
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Annie Millerbernd writes for NerdWallet. Email: [email protected]
The article Home renovation in 2022 requires patience and flexibility originally appeared on NerdWallet.