The Expert Podcast

So there's been a lot of ups and downs in the home construction market remodeling new builds, but what's coming down the pipeline Well…

For the last two years it was a big spike in remodeling and construction that's because when the pandemic hit, people wanted to add more space to their house, upgrade their living space And then you had a period of time where when interest rates were low and home prices were spiking people wanted to build new homes. Well all that's over now interest rates are higher. And that also affects remodels because. You have to borrow money in most cases to remodel your house But in the next couple of years there will likely be a big spike. In remodels and addition to why is that?

Typically homes. Go through different evolutions of design and upgrades. That's usually at about 30 to 40 years old when a home is 30 years to 40 years old. That's. when there's major reconstruction in the home, certainly people do remodels and maybe.

the light upgrades to kitchen or bath or paint. But at 30 to 40 years there's major things that are done could be the roof. Right. It could be septic system. It could be to completely…

restructure the floor plan and layout of the home. Because what happens after 30 to 40 years is the home now is functionally different from what the current market is. It could be the layout could be the number of bedrooms. It could be the size of the closets. It could be an open floor plan versus a dedicated floor plan.

There's a lot of things that change. Certainly they changed sooner than 30 years but at 30 years is when it really starts to become an older looking and feeling home. Well, if you rewind the tape. Going back 30 to 40 years. You're back now into the 1980s.

The 1980s is when there was a big. Boom. Of housing construction late seventies early eighties into the mid eighties. Well now those houses are starting to get to be 30 to 40 years old. They need a roof Most roofs go for 30 years.

Things like siding. Right Might be 30 years old. You're going to find that a lot of these houses either need functional upgrades or have a big want for,

aesthetic. And design upgrades. What does that mean for builders Well, That's going to put a lot of these projects onto the front burner for homeowners builders need to be prepared for this. Now there may be some. You know throwing a wet towel on this because the interest rates are still high and some people may not want to borrow money.

At 8%, which is what a. He locked We'll be right now by the percent cash out Refinance. and that's expensive money but some people just have to do it If you need a $40,000 roof and you don't have 40,000 you might have to borrow the money. At a percent might be you know four or 500 a month. if you just can't stand your kitchen anymore because it's too old, you might have to come out of pocket 25, 30 grand to do that.

And whether or not you do it from savings tap your 401k borrow a this has got to be something that is going to be a necessity at some point, because the house is not quite unlivable, but just not really desirable. And according to this article the numbers are pretty big. The residential remodeling market will have 24 million homes in need of repairs or upgrades roofs floors heating cooling kitchens bathrooms and more.

these homes are going through a sort of facelift…prime remodeling years when it reaches 20 to 40 years old. There's a big wave of homes entering that scenario. This is going to be systemic over the next decade. To where these types of remodels are required now for builders this is actually pretty good because building a new home is a lot more. intensive right You're starting with brand new permits.

Zoning and use where an existing home remodel Yeah You need permits and inspections, but it's not quite the same level of a project is building a new home and you can do more of them. You can do a remodel in three to four weeks. We're building a home might take three four months right Depending on this. The scope and scale of the project. The other reason for this, maybe on the other end of the scale is in the past when a home got to be old and it needed a new roof and remodeled some people would just sell it and buy a new house.

Well now, Many people are locked in a rate at 4%. And we'll likely stay put for as long as possible. Right So they have to upgrade. So the, the interest rate on one head we'll keep some of these remodels from…

happening But on the other hand we'll accelerate remodels because more people are kind of want to stay put I keep their 4% interest on their current mortgage They may have to borrow. At a higher rate on a second mortgage if they're going to borrow to remodel. But some people will do just do it from cash and from savings. There is however, the issue of price and remodeling customers are becoming more price sensitive Part of it's because of the interest rates and the economy Part of it's also because. Of comparison to prior remodels, the cost of a construction project is higher.

Building materials is higher. Labor's higher construction costs are higher So if they compared while I remodeled my kitchen for 10,000. 20 years ago Why is it now 35,000 right There's a big culture shock or sticker shock in some of these. cost basis. And this is the key right here We've talked about it on the real estate side, housing turnover is going to slow.

And the reason for it is because even though housing prices have gone up. There's still a demand of people that want to buy him but there's may not be the same number of sellers unless the sellers kind of get a high price for their house They're going to keep it because their low mortgage rate can't be portable to the next house. If you have a three and a half or 4% mortgage on your current house, even if you sold at a high dollar amount. And you want to upgrade your house Your new mortgage is going to be six and a half seven seven and a half percent. So even if you buy the same price house without going up at all which you'd never do, your mortgage might double.

Your mortgage payment right? Between tax insurance interest. So unless it's a really unique situation most people are going to hunker down. Remain in their current home and maybe make it into their dream home. By remodeling or upgrading or putting on addition So for builders, this is going to be an interesting period of time when some of these projects start to come to fruition and it may require an adjustment in how these projects are done.

Putting them into like a cookie cutter assembly line process. And also getting the labor that's One of the difficulties right now is getting skilled trades. You know we have builder colleagues that are offering $80-$100 an hour for actual labor costs paying their workers that much.

And they either can't find any or the ones they do find work a little bit and come to find out they're not qualified or they don't show up So the availability of workforce is a problem. And materials is eased up a little bit but there's still a little bit of a backlog on certain materials thin goods. You know too before it's 2.6 are pretty good, but some of the larger structural materials still may have a little bit of a backlog because of the curtailments at the lumber mills in,

the Western part of Canada.