Home Upgrade Costs That Have Increased Due to COVID-19
Many American families transformed their stimulus payments into home equity by putting that cash into remodeling projects. It’s money well spent. A smart and strategic rehab can boost a home’s value by tens of thousands of dollars.
But anyone shopping for DIY supplies or for the services of a contractor knows that remodeling a bathroom or adding a bedroom costs more now than it did before the virus — much more. A perfect storm of events has sent the cost of home renovations skyward. GOBankingRates talked to experts across the industry to find out why and to help you decide if now is the right time to finish your basement or build a deck.
It Started With a Lumber Crisis
There is a widespread consensus that building materials are much more expensive across the board and that lumber was the first domino to fall. Although wildfires, land disputes, environmental concerns, and an invasive beetle in Canada share some of the blame, much of the current lumber crisis can be traced to an avalanche of stimulus-induced demand.
“Soon after the pandemic started, the demand for building materials for home improvement began to skyrocket as homeowners spent their stimulus checks on supplies,” said Robert Taylor, a 15-year Sacramento-area house flipper and the owner of The Real Estate Solutions Guy. “Lumber yards that typically catered to building contractors saw a large influx of homeowners coming in and buying materials. Within just a few months of the stimulus checks being received, lumber prices began to skyrocket. Two-by-fours went from $3 to $6. Plywood went from $20 to $60 over the year. Additionally, the demand for new homes has also increased the demand for lumber.”
From Lumber, Inflation Spread to Just About Everywhere
The ripple effects of the lumber crisis quickly began affecting price tags on building materials of all kinds.
“Most common home-improvement materials have gotten more expensive over the last year,” said real estate investor Tomas Satas, a professional flipper, landlord, and founder and CEO of Windy City HomeBuyer. “Everything from drywall, copper, and PVC plumbing materials, furnaces, AC condensers, electrical materials, concrete, and just about everything else has risen in price.”
Licensed broker Bill Samuel, a full-time residential real estate developer and rehab specialist with Blue Ladder Development, is having a very similar experience.
“Sheet metal has gone up considerably since the start of the pandemic and has seen dramatic price increases since the start of the year,” Samuel said. “Really, all the raw materials used for the installation of HVAC ductwork in a home have gone up quite a bit. Copper pipes used for plumbing supply lines have also gone up quite a bit since the start of the pandemic.”
Indirect Costs Are Adding to the Tally
The rising price of raw materials has caught the industry’s attention, but there are other contributing factors that aren’t as obvious.
“There are definitely indirect costs that are making home rehabs pricier,” Satas said. “A few examples are the deficit of plastics coming out of Texas due to a major pipeline getting shut down, a decrease in the supply from the lumber industry as workers got laid off during the pandemic, the rising costs of shipping, and the rising costs of fuel, which indirectly affects almost everything to a certain extent.”
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All of this is taking place as the hottest real estate market in a generation continues to gobble up supplies and churn out new demand.
“It’s not just building materials that have gone up in price,” said Volodymyr Barabakh, co-founder and project director of BM International Builders. “The surging cost of buying a home has seen more and more people wanting to build rather than buy. This has pushed up the cost of contractors who are struggling to keep up with this additional demand.”
Pricey Materials + Increased Demand = Expensive Contractors
As the sizzling housing market puts greater pressure on contractors who are already paying more for building materials, those contractors can only respond by raising their own prices.
“We have pushed up our hourly rates by 15% in the last 12 months,” Barabakh said.
Predicting the price of volatile commodities and labor markets over long periods of time is not easy under normal circumstances — and these are not normal circumstances.
“Contractor pricing is always subject to their current availability,” Samuel said. “So as their schedule starts filling up months ahead of time, their prices will start to increase. Right now, every contractor is busy and having a hard time finding quality labor to keep up with the amount of work they have on their schedules, so they are raising their prices.”
Prices are rising so much so quickly, in fact, that contractors can’t even estimate what their services will end up costing over the course of a project.
“It is difficult to even submit bids for jobs because most skilled contractors are booked for months ahead of time and materials may double by the time we get to a job lined up for next month,” Satas said. “What we have been doing is giving a price for labor and an estimate for the costs of materials. Some of our customers have had to cancel jobs because prices for lumber have risen so drastically that they could no longer afford to pay for materials two months later.”
He added that demand is so high that many homeowners are willing to pay hefty premiums to cut the line and get their projects done first.
“I personally know many contractors that are booked until the fall right now,” Satas said.
So, Remodel Now or Wait and Hope it Doesn’t Get Worse?
There are so many variables and so many unknowns that it’s simply not possible to speculate with any accuracy as to whether prices have peaked.
“It is really hard to say if the price increase trend will continue since predicting commodity prices is like predicting the direction of the stock market,” Samuel said.
If costs do fall, don’t hold your breath waiting for pre-pandemic prices to return.
“While prices went up quickly, it’s unlikely that they will decline quickly,” Taylor said. “Homebuilders and lumber wholesalers often purchase raw lumber months or years in advance of anticipated projects. These purchases, called lumber futures, are traded on Wall Street just like oil futures. Lumber futures are often volatile, but even with recent sell-offs, lumber futures are still almost 50% higher than pre-pandemic norms. Additionally, with lumber orders being purchased now at inflated prices, for delivery in the future, it could be one to two years before we see lumber prices return to pre-pandemic prices, if ever.”
Right now, there are no sure bets.
“Honestly, if anybody told you they knew if the cost increases are temporary, then they would only be guessing,” Satas said. “Every year as fuel prices fluctuate we see the costs of certain construction materials change, and for the most part, they have almost always eventually flattened out. Currently, there are so many different direct and indirect factors affecting the cost of materials that only time will tell what the future holds.”
Satas is hopeful, but not necessarily optimistic — at least not for the near future.
“I talk to my suppliers multiple times per week,” he said. “And they haven’t made any indication that prices will decrease any time soon.”
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Last updated: June 1, 2021