Renovate, don’t relocate: Priced out of perfect homes, millennials are choosing to create them instead

If you’re thinking of renovating, you’re not alone

The housing market is a confusing place right now. More houses are finally becoming available, but prices are still up 10% over last year, according to Redfin. And with interest rates rising, it isn’t just hard getting on the property ladder now, it’s tough trying to move up it as well.

“It's so hard to actually find the perfect house in the perfect neighborhood,” says Eric Finnegan, vice president of research and demographics at John Burns Real Estate Consulting, which delivers analysis on the housing market to clients such as builders, realtors and investors.

“And that's just gotten harder since COVID. And for a bunch of reasons, it’s probably going to be hard for the next three to five years.”

And despite the frenzied market – or because of it – many people are putting money into remodeling their homes.

Renovation activity and spending hit a four-year high in 2021, according Houzz’s U.S. Houzz & Home Study: Renovation Trends. More than half of homeowners renovated last year pushing the median spend on renos up 20% to $18,000.

In 2020, Americans put $420 billion into remodeling their homes, according to the National Association of Realtors and the National Association of the Remodelers Industry 2022 Remodeling Impact Report.

And millennials are playing a big part in that.

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More millenials are choosing to renovate

One of the ways millennials are getting the homes they want is by creating them.

Normally, an entry level buyer would trade up to a larger home after about five to seven years, says Finnegan. But his research shows many millennials are deciding to stay put, and remodel instead of moving. He calls it the “trade up in place” phenomenon.

“Since it's so hard to find a house right now, they're saying, ‘Okay, I'm not gonna actually do the trade up, I'm going to stay where I am. I'm going to plan on staying here another 10,15, 20 years, and just upgrade everything.”

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More renovations, more problems

But taking on a remodel comes with its own set of issues.

Finnegan says about one in 10 households is engaged in a large-scale remodel, and as demand for supplies and labor goes up, so does the cost.

“Remodelers are basically having to raise their pay rates to their workers to keep them from being poached by remodelers across town, that's one part of the dynamic,” says Finnegan.

Add to that supply chain disruptions, high demand for materials, and more recently, the high cost of gas and diesel.

“Now [remodelers have] been booked out into 2023. So they're actually looking to just focus on this part of the market that can afford remodeling projects now. And so they're actually able to raise their prices, some of them for the first time in a while.”

Waits for contractors are several months-long and quotes on pricing are changing all the time.

“Normally, when a remodeler submits a quote, they'll leave it open for maybe 30 or 45 days because the homeowner is getting bids from a few different contractors,” says Finnegan. “That remodeler is shortening that quote window because their prices are going up.”

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How much value do these projects really add to your home

The upside is that remodeling can add a lot of value to your home and there are some projects in particular that see strong returns when it comes time to sell.

Refinishing your hardwood floors has a cost recovery of about 150% according to the remodeling impact report, while adding new hardwood floors has a cost recovery of nearly 120%. Insulation can bring you a 100% return on your investment.

“Every dollar that you're putting in, you're getting back if you were to sell that home,” says Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors. .

On the lower end of the cost-recovery spectrum, adding a new primary bedroom has a 56% return, a new bathroom is 63%, while kitchen upgrades come with a 67% return.

Though those returns may not be realized for years, depending on when you sell, there is also a joy factor to be considered, says Lautz. The report also asks homeowners how much joy their changes brought them in their home.

“Honestly, this year's iteration of the report, the joy scores were all a little higher,” says Lautz. “So I think people are just happier to have this change, and do something with their home that really made them feel good.”

Keeping costs of remodeling low

There are ways to keep the costs of a remodel relatively low, says Casey Finn, founder and CEO of the DIY Playbook.

Finn and her husband remodeled their Chicago condo without any building experience. They renovated a bathroom, added built-ins and other customized touches.

“We sold it within 24 hours, we got five offers, and an all cash offer, we went with that one,” Finn says. “And we made like $100,000, just by doing a lot of DIY and then selling it because people just didn't see anything else like that in the market, because everything was just kind of builder basic.”

Now they’re now onto their second home in the Chicago area.

“It's in a great neighborhood, but it was probably the ugliest house on the street,” Finn says. “And that's what we were looking for … and we're like we see the potential here.”

For the most part, Finn and her husband do a lot of the work themselves but hire out when they need to. For specialty jobs, such as electrical and plumbing, they hire out to ensure it’s done correctly with the right permits.

“But when it comes to just cosmetic upgrades, or tiling, or woodworking, things like that, we take on those projects ourselves to save money,” she says. “And to just get the gratification that comes with doing projects yourself.”

Make a budget

Finn says planning is the most important part of any project. The first thing she does is make a budget with a 10% to 20% buffer for whatever could go wrong.

“People don't talk numbers. And to actually know that's how much a kitchen renovation is going to cost is really helpful.”

It also helps you understand where you’re saving money.

“For example, we did some built-ins. And I got a quote from someone, I think it was like maybe $7,000 to do that. And I think we did it for about $1,500.”

She adds that was before lumber prices skyrocketed.

“We saved so much money doing it ourselves.”

Do your research and plan ahead

The internet these days is a treasure trove of information on Do It Yourself (DIY) projects. Between Instagram, Youtube and blogs, there’s almost nothing you can’t learn.

“I'm a blogger, but I read other people's blogs, and I say, ‘Wow, that's how they did that build, I'm gonna put my own spin on it’,” says Finn.

She’s also not afraid to ask the professionals.

But they’ve shared in the struggles of renovating during this time as well. After experiencing delays with a kitchen remodel, waiting for cabinets to arrive, Finn says she booked her contractor months in advance for help with a bathroom reno.

For Finn and her family, remodeling has been the right decision. She estimates they have added hundreds of thousands worth of value to their home over the course of their renovations, and that’s not including the “joy factor.”

“But we've also spent a lot of money too,” she says. “You can't expect to get every single dollar back, but when you're able to enjoy it, that makes such a difference.”