Rising housing prices are making it harder to afford turn-key listings, recent data shows. According to a report by Move.com, approximately 60% of people looking to buy a house are willing to consider properties that need renovating. Additionally, according to the U.S. Census Bureau, 30% of remodeling activity was major additions and alterations, 40% minor additions and alterations, and 30% maintenance and repair.
“Whether it is seeing the project unfold in a tidy 30-minute segment, or just getting inspired by the before and after shots, home shoppers are turning to home renovations to make their dream home when finding one as-is turns out to be difficult,” the report stated.
Homeowners remodel more than 10.2 million kitchens and 14.2 million bathrooms each year. Approximately one-third of survey respondents said kitchen remodels were at the top of their list of projects they were willing to do. This may not come as a surprise considering 76% of homeowners change the style of their kitchen during a renovation. Even a minor kitchen remodel can bring in a return on investment of 82.7%.
The survey reports that one-fourth of respondents said they would be willing to renovate their bathroom while 18% said they would only be willing to refinish a wood floor.
Nearly 50% of respondents said they would be willing to spend $20,000 on a renovation. About 28% said they would prefer to budget between $10,000 and $20,000 and, for a living room redecoration, consumers are willing to spend $2,200.
Home buyers report they’d be willing to spend this money because of the return on investment they can expect from the renovation. Up to 95% of survey respondents said they expect to make back the money they spend on their renovations with an additional boost to their property value. One-fourth of respondents said they expected to see a return of over 50%.
Unfortunately, chief economist of the National Association of Home Builders Robert Dietz says those high expectations for ROI may not be realistic.
“When they show homeowners putting in $50,000 and then the value of their property jumps by $75,000, sometimes what you are seeing is the true reflection of the labor expenses,” said Dietz. “The budgets on remodeling sometimes just include material costs, and often they get a deal on that.”
Lower-than-expected returns may be the reason why home remodeling expenditures are expected to cool by 2020. According to a report by the Joint Center for Housing Studies of Harvard University, spending on home remodeling is projected at $347 billion, a mere 2.6% growth from the projected 6.9% growth in 2019.
However, despite the estimated cool-down, homeowners are still estimated to have spent $339 billion on remodeling in the first quarter of this year, which is a 7% jump from 2018. In the second quarter, that number is expected to climb to $345 billion.
The consumers who are most likely to take on renovation projects are those who have already had experience owning a home but are under the age of 55. Approximately 65% of home buyers between the ages of 35 and 54, according to the Move.com report, were willing to fix up a potential property.
In comparison, 59% of home buyers under the age of 35 said they’re willing to take on a renovation project. But less than one-third of home buyers over the age of 55 said they would want a property that needs a renovation.
Home buyers over the age of 55 are more likely to avoid fixer-uppers because they’re saving their retirement funds and aren’t as interested in building their home’s value as they are downsizing. Younger homeowners are more interested in renovating because of the shortage of starter homes currently in the housing market.
“Starter homes are … less likely to be move-in ready, with fixer-uppers comprising 11.2% of the starter home segment compared to 10.3% six years ago,” reports housing website Trulia. “Among all housing segments, fixer-uppers have actually decreased by 0.6 percentage points down to 4.8%.”