Home remodeling looks to be on the rise in 2016 according to the Joint Center for Housing Studies at Harvard University. The optimistic report comes from the LIRA (Leading Indicator of Remodeling Activity) projections suggesting a considerable growth in spending on home improvements in 2016. The October 215 report projected a growth from 2.8% in the fourth quarter of 2015, all the way to 6.8% in the 2nd quarter of 2016. In the wake of that report, spending growth has already increased 4.3%. The new report in late January suggests that the growth could be up to 7.6% percent in the third quarter.
What’s causing this growth? Home prices have been rising in many real estate markets as sales are improving. This causes the values of other homes in the area to rise, as well. Increasing home values mean greater equity and makes doing major remodels more worth the effort.
Says Abbe Will, a research analyst in the Remodeling Futures Program at the Joint Center:
“The remodeling market has steadily improved in recent years with homeowners incorporating larger, more discretionary projects into their home improvement priorities…”
However, despite that improvement, Will notes a couple of potential things that could stunt the sudden jump in spending growth.
“The real test this year will be whether the industry can clear ongoing bottlenecks in labor availability and consumer financing concerns to fully meet this increased demand.”
There is so much pent-up demand for remodels that sometimes there are often not enough contractors for the number of potential jobs. While it’s obviously good that there is plenty of work, budgets have to be strict. This is something that is often easier said than done with remodels. If home values continue to rise, however, this will help with the potential financing options.
What Does This Mean For Homeowners?
Truthfully, major remodels are only worth the investment if the total project cost doesn’t exceed a certain amount of the home’s overall value. You hear a lot about return on investment when it comes to various home remodeling projects. But this doesn’t mean you should spent $50,000 on a major kitchen remodel when the home is worth only $120,000 on today’s market. Most individual remodels shouldn’t exceed 20 to 25 percent of the home’s current value.
So what if you suddenly discover your home has raised so much in value that you have $50,000 in equity available as a line of credit or to borrow against? You will want to consider what upgrades are truly necessary first of all, such as roofing, windows, or utilities (electrical, plumbing, etc). This will greatly minimize the chance of issues in the future when major remodels are being done.
Because home values are generally on the rise, this means it’s a good time to see a return on investment for major remodeling projects such as kitchens, bathrooms, and basements. Just be sure to plan well in advance and don’t spend all your money in one place.