Soaring home repair expenses worsening already strained affordability issues
In recent years, homeowners and first-time buyers alike have noticed a significant increase in the costs associated with home repairs and remodeling projects. According to Tony Diaz, founder and CEO of Flip IQ, the main driver of these increased costs is not tariffs, but rather higher labor costs.
The aging of America's housing stock is a contributing factor to this trend. With the median age of an owner-occupied U.S. home being 42 years old in 2023, many homes require extensive repairs and updates. Baby boomers, who own 37 percent of homes across the country, are spending more money on these projects to age in place instead of downsizing. The aggregate share of home-improvement spending by homeowners aged 65 and older virtually doubled from 2003 to 2023.
These repair and remodeling projects are becoming increasingly expensive. For instance, the average cost for "paint and carpet" work for a typical 1970s-era 2-bedroom/2-bathroom, 2,000-square-foot Southern California home has jumped from $28,000 to $38,000, primarily due to labor shortages exacerbated by immigration policies.
Labor costs now account for almost 60 percent of the cost of these projects. First-time homebuyers, who are already facing increased affordability issues, should factor in these increased costs when considering a fixer-upper or a rehabbed foreclosure home to avoid an unexpected financial nightmare.
The slowdown in home sales, coupled with increased costs, has led some investors to pause their investments, potentially limiting the availability of rehabbed properties for first-time buyers. Tony Diaz, for example, has paused his investments due to these factors, which may result in fewer rehabbed properties being brought to market.
The potential impact of tariffs and stricter immigration policies on construction labor costs and material prices is a concern that is being monitored closely. However, according to the Verisk report, material prices have remained fairly stable thus far into the Trump administration. Greg Pyne, VP of Verisk, mentions that they are watching closely the potential impact of these factors on construction costs.
Despite these challenges, total spending for repairs, updates, and ongoing maintenance reached a record $611 billion in 2022. Spending on repairs to the aging housing inventory increased by 54 percent from pre-pandemic expenditures in 2019, with almost half spent on necessary replacement projects. Another 30 percent of the spending was dedicated to kitchen and bath remodels and room additions.
The rising costs of home repairs and remodeling projects are a concern for many, but understanding the factors driving these increases can help homeowners and buyers make informed decisions. By factoring in the increased costs of materials and labor, homebuyers can avoid unexpected financial burdens and find homes that meet their needs within their budget.
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