After a pandemic surge of home renovations, a slowdown in growth is expected next year. But with mortgage rates at a two-decade high, plenty of homeowners will still renovate what they have.
A recent report from the Joint Center for Housing Studies at Harvard University says homeowner remodeling and repair spending growth will probably slow from 16.1% this year to 6.5% growth in 2023.
Research by the National Association of the Remodeling Industry mirrors that forecast, but it is still growth — and for many homeowners, remodeling projects are a first-time event. So managing expectations and knowing the bidding process are important up front.
There is a “fixed bid,” in which the remodeler creates an estimate and proposal that is a fixed number which will be the final cost of the project, regardless of unexpected surprises. There is also a “time and materials” bid.
“Basically … the remodeler will agree to a cap, and then they will bill for work in place as the project goes along. That price could fluctuate one way or the other to the advantage of either the remodeler or the homeowner,” said Andy Apter, the president-elect of the National Association of the Remodeling Industry.
Apter, who has owned a remodeling business in Annapolis, Maryland, for 40 years, said the fixed-bid process is the most common. That puts the remodeler at risk of having to absorb unexpected expenses in the remodeling project, but contractors know how to mitigate some of that.
“We are all business owners. Despite how skilled we are at what we do, when you’re estimating hundreds of moving parts on a project, you can underestimate or miss something. You hope to make it up on something else. And typically on a large remodeling project, that is kind of the way it goes. You take from one area and fill in another area,” Apter said.
Many homeowners remodel for need; many remodel for the joy of having a new look.
“A lot of people have locked in very low interest rates in the last couple of years, and may look at their home and say ‘I have to reinvent this space. I am tired of looking at the same four walls and I want a change,’ or ‘I need a change because this is how I function in the home,’” said Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors.
Kitchen and bath remodels remain by far the most popular remodeling project. The third-most popular right now might surprise you.
“A close third is actually LVT, which stands for luxury vinyl tile. I get a lot of calls for that. People will redo their whole first floor with luxury vinyl tile,” Apter said.
Earlier this year, NAR released a “Joy Score” for home remodeling projects that bring homeowners the most satisfaction. They aren’t all big projects. Painting the entire interior of a home topped the list, followed by painting just one room. Installing or refinishing hardwood floors ranked as the best return on investment when selling.
The plethora of home remodeling and home flip shows on cable TV can mean unrealistic expectations for homeowners.
“I’ll give someone a timeline on remodeling a bathroom. I’ll tell someone it will take six weeks. And they will say, ‘Well, it only took a week on the cable channel. Why is it taking six weeks?’” Apter said.
The cable TV show remodeling show format does get one thing correct.
“There will be the unforeseens, like opening up a wall and seeing plumbing systems that need to be moved, or electrical work. The best way [for remodelers to] handle that is to be up-front and straight with your customer and have a level of trust and rapport,” Apter said.