In the current economic climate, you have likely noticed the increase in price of many different goods and services. One of the most notable price increases is the cost of a home remodel. Home remodels require products and skills that have become a bit more expensive and hard to find. These products and materials can come from all over the world, and these skills are not easy to come by depending on several different factors. This is due to various current events and economic issues that have impacted the country as well as the globe. This guide will go over everything you need to know about how inflation has impacted home remodels.
Home Prices and Home Sales
If you have been paying any attention to the housing market, you have undoubtedly noticed the rise in home pieces over the past several months. Of course, this leads to several other implications. First and foremost, higher housing prices inevitably lead to increased prices for home remodeling projects. They are also becoming harder to plan and execute due to the current state of the economy and the world as a whole. A combination of factors including high demand, low availability of homes, shortage of labor and various others are the main players.
How Much has the Price of a Home Increased?
Housing prices have always been rising, but in the past ten years especially, they have been skyrocketing at unprecedented rates. According to the Census Bureau, the average price of a home in 2010 was about $257,000. Now in the year 2021, the average price of a home is about $403,600. That is about a 46% increase in just over ten years. Without a doubt, this is a massive increase in such a short amount of time. The fact that wages have not increased nearly as significantly in the same amount of time, has made purchasing a home much more difficult as well. Looking at this on a smaller scale, we can compare the years 2020 and 2021. In 2020, the average price of a home was about $383,000. Compared to the current average home price of $403,600, this is an increase of 6% in just one year. Of course, this is also something that is incredibly important to note when it comes to understanding the current state of the housing market. Because home prices are increasing, everything that goes along with buying a home is also increasingly difficult or expensive.
Why Are Home Prices Increasing?
There are a plethora of reasons as to why the housing market is so hot at the moment. Of course, the basics must be covered first. At the root, it comes down to basic supply and demand. The number of people in need of a home is outpacing the available number of houses. One of the reasons why this is, is the recovery from the Covid-19 pandemic. Vaccines are becoming increasingly available and people are starting to feel much safer out in public. Due to this, many people are feeling much more comfortable purchasing a home. In terms of new constructions, several things need to be taken into account. First of all, the amount of new construction is increasing over the years on average according to the Census Bureau. However, the rate of people shopping for homes is far outpacing the rate of new constructions, and it isn’t close. In addition, not as many people are selling their homes as well. This is something else that is possibly a result of the pandemic as well. According to NerdWallet, 84% of Americans say that buying a home is a priority for them, as of February, 2020. All of these factors combined, as well as several others, are contributing to the overall shortage of available houses and rising prices.
Difficulty of Making the Purchase
Aside from the availability of houses and the oversaturated market of buyers, there are other difficulties that potential home buyers face as well. First of all, there is an incredible amount of competition when it comes to buying a home. A house gets put up for sale, and offers are almost immediately put in for it. If you are not attentive and prepared, you will find out quickly that the process is going to be tough. In addition, most offers are above the asking price, making it hard for many people to find a home at an affordable price. Housing prices do still fluctuate. That being said, it isn’t impossible to find one at a reasonable price. There are several factors that go into the price of a home, aside from inflation, labor and material. Factors such as location, population, nearby attractions and many other things contribute to the price of a home. All in all, home prices are still high, so it is important that everything is taken into account before a purchase or a remodel, especially if prices suddenly drop.
Are We In A Housing Bubble?
Knowing that housing prices are reaching extremely high numbers, many are asking whether or not we are in a housing bubble. More importantly, people are wondering how long this bubble will last, and when it will burst. If we are in a bubble, it isn’t like any bubble we have seen before. This housing bubble was spurred on by a pandemic, first and foremost. According to Forbes, housing prices rose by 12% in just the past year. Some experts say that a small price correction may be coming soon, but home buyers shouldn’t get too excited. These high prices are expected to hang around for quite a while. Flexibility with working from home, easing covid restrictions and various other factors all contribute to the creation of a bubble, if we are not there already. To sum it up, there are several things that will determine the length of this possible housing bubble. The rate of new construction, homeowners willing to sell, people willing to buy and the strength of the economy will determine what will happen in the coming months.
Average Cost of a Home Remodel
It is no secret that home prices are increasing. Due to this, there are a number of dominoes that fall because of it. One of the most notable things is the price of a home remodel. Even if you have a house paid off, you will still run into problems if you plan on a home remodel any time soon. According to HomeAdvisor, the average cost of a home remodel in 2021 is about $47,000. In addition, most home remodels will fall in between $18,153 and $76,388. The exact price of a home remodel will vary depending on a number of different factors:
The Size of Each Room - Each room of the home is sized differently in most cases. Due to this the amount of work done for the remodel will vary greatly depending on the situation. Bigger rooms will also take more time due to greater floor space. Current Problems With the Home - If a home has underlying issues, it will absolutely contribute to the price of the remodel. Possible issues with the structure of the home, water damage and other issues are contributing factors to the cost of a home remodel. Cost and Availability of Materials - Materials are scarce due to several reasons that will be discussed in length later in the article. In general, raw material prices are extremely volatile, with higher prices becoming common. Scale of the Remodel - The scale of the remodel will be the ultimate factor when determining the price of the remodel. Complete remodels will be priced on the higher end while partial remodels will be much more affordable in most cases.
How Inflation Could Affect Home Remodel Prices
Inflation is something that the United States economy deals with on a yearly basis. On average, the acceptable rate of inflation in the United States is around 2%. However, inflation is expected to reach around 4%-5% this year, according to Trading Economics. With money being printed at an incredible rate, a higher rate of inflation is inevitable. Of course, this is alarming for every aspect of the economy. All types of industries will have trouble performing various aspects of their daily tasks and requirements in order to run their businesses efficiently. This includes the home remodeling industry, which impacts each aspect of the housing market in one way or another.
Inflation needs to end at some point, so it is important to remember this won’t last forever. Due to this, it is crucial to make the proper decisions when it comes to home remodeling and housing purchases in general. You can’t predict inflation, so being on your toes when it comes to housing decisions will only serve to benefit you. As we are currently in the midst of higher inflation rates, the cost of home remodels is expensive. Knowing this, planning and upkeep are more important than ever.
Prices of Raw Materials
Due to the world events that have taken place over the past year and beyond, the prices of raw materials have increased significantly. Materials such as lumber and steel are some of the most common materials used in home remodels, also making them some of the most important. Lumber prices have increased by 35% just this year. The price of 1,000 board feet is currently around $1,180.70. In addition, steel futures have risen by 40% this year. These prices are a result of the pandemic, stimulus spending, infrastructure packages and various other contributing factors.
Because these raw materials have been increasing in price, everything that goes along with them will also experience changes in one way or another. If the price of the materials rises, the purchasing power of buyers will decrease, workers will be paid less or laid off, and the dominoes keep falling until they finally reach the average consumer. As long as the prices of these materials are high, it is hard for industries and consumers alike to provide and buy general items and services.
Should You Follow Through With a Home Remodel?
Knowing all of the factors in regard to the price of home remodel, decisions can be made. Should you progress with a home remodeling project knowing all of this information? To answer this question, several things need to be considered. Of course, each person will have a different situation, but some things will affect people in a fairly equal sense. For example, the prices of the raw materials will be the same for everyone. The cost of labor will also generally be the same for everyone as well. Different costs will generally be the same for everyone across the board.
When deciding on whether or not the remodel should be done, you need to feel comfortable with your situation. If you are spending more time at home during the pandemic, you may want to strongly consider a remodel. This is especially true if you have been saving money working from home. If you are considering selling a home in the near future, a home remodel can be an incredibly beneficial investment to make. A good home remodel can increase the price of a home by a great amount. Home remodels do cost more than in the past, but they could be amazing additions.
The Covid-19 Pandemic and How it Contributed to Increased Remodel Costs
The Covid-19 pandemic has been one of the most catastrophic events to occur in the world in recent history. Not only did the virus impact essentially every major industry, but it was incredibly harmful to the daily lives of American citizens, and citizens around the world. When it comes to home remodel costs, the pandemic didn’t leave it untouched. As previously stated, the pandemic had a massive impact on this industry in particular. From material shortages to pressing demand for new houses, the home remodel industry has been hit hard by Covid-19.
Factory Shutdowns
As soon as people started to see the Covid-19 virus as a potential serious threat, companies started to shut down, per government order. It started as a two week precaution, but as we all know, it ended up being much more than that. Factories and businesses were forced to shut down for extended periods of time, causing several things to happen. This obviously impacted the factories, production, workers and various other factors that contribute to the state of the factory. Again, the closing of factories created a domino effect that made the housing remodel industry much more expensive.
Factories are one of the absolutely necessary components of the supply chain in terms of getting raw materials where they are needed. This is especially relevant in major manufacturing cities such as Detroit. Major factories in various industries were forced to shut down, citing the risk of contracting the disease at the early stages of the pandemic. Across the country, more than 12 million factory workers were forced out of work as well. This sudden halt in manufacturing and available work disrupted the overall state of the economy in a major way.
Container Prices
To no surprise, prices of shipping containers have also skyrocketed over the past year. They are essential to transportation of goods around the world in order for the economy to operate at a healthy and optimal level. The prices of shipping containers are not only rising, but they are rising at unprecedented rates. In the past year, importers have been paying 3-4 times the price of the same container in 2021 compared to 2020. The price of containers is not showing any signs of slowing down either. These price increases are expected to keep increasing through the year.
This is yet another factor to the increased price of home remodeling goods and services. Covid-19 has restricted travel and production, directly linking to the inflated price of shipping containers. Because different countries have different guidelines and restrictions related to the pandemic, it is incredibly difficult to ship items efficiently. Different countries will also price containers differently depending on the current state of the country’s economy as well as the state of the global economy. However, no matter what country is in question, container prices are generally higher all around the world.
It’s Difficult to Find Contractors
Along with a shortage of available housing, there is also a shortage of skilled labor when it comes to contractors. Much like other industries and professions, the lack of skilled labor is mainly due to the Covid-19 pandemic. However, contractors are especially difficult to find for several reasons. First of all, contractors are limited in what they can do due to skyrocketing commodity prices. If they do not have the materials they need to perform their job, they obviously won’t be able to take any jobs from customers. In addition, there is a shortage of these commodities in general, making them difficult to access in the first place.
Secondly, many people who planned home remodels, had to cancel them due to Covid-19. This caused a lack of demand for contractors in 2020. This led to many contractors either getting laid off or to find new work during the virus outbreak. Now that the pandemic is easing off, there aren’t enough contractors to fulfill the number of requests. In addition to that, construction employment has fallen below the pre-pandemic peak. As the pandemic begins to wane, it’ll be difficult for contractors to rebound from all of these factors working together at the same time.
The Price of Home Remodel Products
When it comes to home remodels, various different resources are required for the different projects that will need to be completed. The obvious raw materials such as lumber, certain metals and other similar materials are seeing massive price increases. The global semiconductor shortage is something affecting the number of common household appliances as well, such as dishwashers and freezers. Some of these prices show no sign of slowing down either. Each of these products are required for incredibly important aspects of a home remodel.
In addition to all of the interior design products on the rise in terms of price, outdoor products are also seeing price hikes. This includes furniture, outdoor fireplaces and swimming pool materials, among others. According to Business Insider, there have been unusual shortages of outdoor cushions and similar products. Essentially every raw material has been increasing in price, making the production of consumer products much higher as well. Because it is impacting essentially every aspect of the supply chain, it is hard to see this problem going away any time soon.
Why There are Shipping Delays
Across the world, shipping delays have plagued the average consumer, business and basically all other parts of the supply chain. It starts from the top down, getting worse and worse for the last part of the shipping process; the delivery to the consumer. Even companies that are known for speedy shipping, such as Amazon, are experiencing stocking and shipping issues. What used to be one or two day shipping, can now sometimes take up to a week or more. The lack of workers, Covid-19 protocols for industries and companies and lack of raw materials end up delaying shipping at all stages.
Specifically when it comes to USPS shipping delays, there are many reasons why delays are occurring. Of course, Covid-19 is one of the most obvious. However, other world events have contributed heavily. Two major events occurred in the past year that caused shipping delays. First of all, the Suez Canal incident caused massive delays in shipping all across the world. This was an unprecedented event that impacted trade in a way never seen before. There were also major weather issues across the world that, mixed with the Covid-19 pandemic, slowed shipping. The Texas freeze damaged both energy and shipping scheduling. Hurricanes hit the southern United States relatively hard as well.
Shipping Container Issues and China
As we already covered, shipping containers are one of the biggest players in the worldwide delays in shipping and increased material prices. Getting into more specific details, there are major issues when it comes to one of the world’s biggest and most important economies in China. Shippers are sending empty containers back to China due to the high prices importers are charging for these containers. Shipping container prices have risen 300% in this area of the world, which is a major roadblock in terms of accessible shipments and effective and healthy trade.
According to CNBC, there are tensions within the Chinese economy, as well as the interactions major trade partners have with them. The reason the Chinese are so aggressive about getting the empty containers back to the country is that it is hard to get a container for U.S. exporters. The same issue has been happening in European countries such as Germany, Hungary and Austria. China is also sending out many more containers to the U.S. and Europe than the other way around. Due to this, containers are being held in western countries, when they really need to be in Asia. The locations of these containers are causing big issues that impact essentially every country involved in a negative way.
How It All Ties Back into Home Remodeling
All of these issues contribute to the cost of a home remodel in one way or another. Whether it is the price of materials, shortage of skilled labor or any other factor, the cost of a home remodel is impacted greatly by the current world situation. Each of these factors must be carefully considered when remodeling a home, buying a home, or simply understanding the situation as a whole. Below is a review of each of these issues, how they tie into each other, and how they individually affect the home remodeling industry.
Increased Home Prices
Prices of homes have increased at a relatively quick rate. This is mainly due to shortages of essentially everything needed to to build new homes and remodel existing ones. In addition, the easing Covid-19 pandemic has created an extremely high demand for houses. Vaccines are becoming increasingly available and people are feeling more comfortable purchasing homes. This is happening all at once, making it hard for the average American to find a home at an affordable price.
Increased Home Remodel Prices
Much like overall home prices, home remodel prices have also become more expensive. Shortages of raw materials and labor are necessary for a proper home remodel, both of which are in high demand and short supply. In addition, various issues with shipping across the globe are creating problems with getting necessary resources where they need to be. Home remodels are increasingly in demand due to the recent changes in the world economy and overall personal preferences.
Inflation Rate is Skyrocketing
Inflation is one of the biggest factors as to why home remodeling costs are getting higher. It is expected to reach 4%-5% this year. The average rate of inflation is about 2%. This doubling inflation rate is definitely a cause for concern, as it will impact all American industries, as well as global trade. Experts say the rate of inflation is hard to predict in terms of timing. Because of this, there are no signs of inflation rates getting lower any time soon.
Prices of Raw Materials
Raw materials such as lumber and steel are seeing price increases due to current global conditions. Lack of workers, lack of production and prices of shipping containers contribute to the overall prices of raw materials. These materials are necessary for home remodels. In addition, many other industries in the United States are affected. Although these materials are usually easy to find, the pandemic hit this industry hard.
Factory Shutdowns
The Covid-19 pandemic has prevented businesses from providing goods and services due to major factory shutdowns. Some of these shutdowns have proven to be permanent, or at least very long-term. This completely halted the production of extremely important goods necessary for home remodeling projects. All of these factory shutdowns also caused many workers to be forced out of work, sometimes for months or even for good.
Soaring Shipping Container Prices
Shipping containers are essential in transporting goods and materials around the world in order to provide consumers, manufacturers and businesses with necessary items. The prices have gotten so high, it is hard for countries to pay for them. The 300% rise in price does not seem like it will get lower any time in the near future. This is a problem that is incredibly detrimental to the overall health of the world economy.
It’s Difficult to Find Contractors
Also in part to the pandemic and shortage of raw materials, contractors are very difficult to find at the moment. Many contractors lost work during the last year, creating a shortage of skilled labor. As the pandemic starts to ease up and vaccines are increasingly available, this may change in the future. In the coming months, more contractors should be available for work. The demand for housing and remodels will likely increase.
Overall Shipping Delays
Shipping containers around the world get stuck in certain locations due to incredibly high prices. All types of shipping has been slowed. This starts from the shipping containers. However, it trickles all the way down to USPS ground shipping. Not to mention, the airline industry got hit incredibly hard by this as well.
In Conclusion
To wrap things up, inflation has had a huge impact on the overall state of the economy. Of course, many other things contribute to this as well, including generally higher prices, lack of labor and various others. The effect they have had on the housing industry has been incredibly impactful. This, in turn, also affected the home remodeling industry. If you are deciding on whether or not you should remodel your home, be sure to take each of the factors in this article into account. The inflation rate is rising. It is important that each of these are carefully considered in order to properly assess what the best option is for each individual.