Hot Market Boosts Renovations: Buyers choose remodels over bidding wars
by Craig Manning
Can’t find a home to buy in the midst of the current frenzied housing boom? Consider renovating what you already have.
According to Robert David Davis, a local contractor who owns and operates the South Boardman-based construction business Diamondwood, Inc., that’s the mentality that many customers have been bringing to the table throughout the past year.
Though Diamondwood offers a range of residential construction services – from architectural design, to exterior stonework, to custom new builds – Davis says his workload has been “just about 100% remodels and renovations” in the year and a half since COVID hit.
Davis credits the popularity of renovations right now to a variety of factors, but they all cluster around a single concept: space. Some people are focusing on office space because they are working from home and need more room to be comfortable doing so, or need to revamp what they have into “more usable, more user-friendly working space.”
Others did a lot more outdoor entertaining during the pandemic and are now investing in their outdoor spaces, from patios and decks to outdoor kitchens. In either case, Davis says the goal of most projects is to get more out of the homes they already have, rather than face the buying market for something new.
“They’re trying to utilize all the space they have, given the price of things,” Davis explained.
Bidding wars on real estate have added to the boom, he says.
“I’ve got a few friends that sell real estate, and anything that goes up on the market that’s decent at all, there’s two, three, four, five people bidding on it,” he said. “And I know of a couple just lately that got $40,000 more than they were asking for, just because there was a bidding war.”
The hot seller’s market is driving some to look at what they already have, Davis says.
“I think more people are also deciding that they’re going to fix up what they’ve got,” he said, “rather than sell and try to buy something else.”
Not all contractors in the region are seeing the same trends. Colin Bushong of CMB Construction, for instance, has been so booked up with new home construction projects recently that he hasn’t taken on any renovation jobs “probably in the past three or four years now.”
The demand for new housing in northern Michigan – particularly in and around Grand Traverse and Leelanau counties – has been so high that homeowners interested in renovations or additions may have a harder time than they expect finding contractors who aren’t booked out with new builds just like Bushong.
But Davis says that he’s actually seen things go the other way, with clients canceling or delaying new-build projects because of cost. After all, houses aren’t the only thing selling for a premium right now. Lumber packages and other building materials have been hitting near-record highs as well.
“People eyeing smaller homes, maybe in the $300,000 to $500,000 range, they’re kind of backing out right now,” Davis said. “Because of the prices (of construction), they’re wanting to wait until next year.”
Even for renovation projects, the cost of materials has been a stumbling block for Diamondwood. When asked which building materials are still seeing cost hikes or delays – whether because of higher-than-average demand, residual effects from COVID shutdowns on supply chains, or some mix of both – Davis rattles off a lengthy list that includes lumber packages, countertops, vanities, cabinets, copper, fiberglass, insulation, PVC and vinyl siding.
Overall, Davis says building material costs are up 188% from last year, with lumber framing packages nearly double what they were pre-COVID. Even materials that haven’t seen quite as drastic price jumps, like vanities or siding, can take four-12 weeks longer to get.
Is there an end in sight?
As it turns out, a turnaround may be nearing. Lumber prices, for example, are finally on a downward slide, having fallen some 60% from peak price points in May, per financial and business site Business Insider. The housing market is also cooling off a bit, after a red-hot surge buoyed by historic low interest rates, COVID-era relocations, and a variety of other factors.
According to the National Association of Realtors, monthly sales numbers for existing homes in the United States hit their fourth consecutive month of decline in May. Slowing sales numbers nationwide are helping to boost housing inventory slightly, which should also slow the trend of bidding wars and skyrocketing real estate prices.
Collectively, these trends could indicate that a return to normal is at least underway. And returning to normal might also mean a slowdown in the demand is imminent for renovation projects.
Nationally, remodeling activity has been up since the beginning of COVID. In June 2020, the home improvement site Houzz reported that it had tracked a 58% year-over-year increase in project leads for home remodeling professionals. Those trends have only continued to spark in the year since. According to a recent study from the National Kitchen & Bath Association, renovations just on kitchens and bathrooms are estimated to hit nearly $171 billion this year – 8% up from initial estimates, and 28.5% higher than 2020.
While pandemic-era trends might be slowing, though, Davis thinks at least one of the big shifts in market dynamics that happened during COVID could be permanent. Citing studies about the here-to-stay nature of remote work – research suggests that 20% of the workforce could continue working from home three to five days a week, and that more than 70% will be working remotely at least five days per month – Davis projects that the pandemic era leap in remodel activity isn’t going to burn out right away.
“I’ve got one project that I’m in the midst of, where I took a cottage on the lake, gutted it down to three walls, and then added an addition that almost doubled the size,” Davis said about the project, whose owners are from Ohio.
With the wife working from home, there is a lot of “time, effort and money” going in to creating a unique office space for her job in the travel industry, he said.
“With 20% of the workforce likely to be working from home (full time) by 2025, there’s going be a big portion of that here in our area,” he said. “And that’s going to continue to drive remodels.”