Is it a good time to Renovate? Will Materials drop? Have Housing Prices finally topped out?
TIMING THE Renovations MARKET IS IMPOSSIBLE
There are plenty of reasons to do renovations now. Cheap money, rising property values and an economy supported by government injections. Let’s face it– they can’t just turn off the tap without the whole thing grinding to a screeching halt.
Will it last forever? Of course not, what does?
IMMIGRATION FUELED HOUSING DEMAND
Here in Canada we are welcoming 400,000 newcomers each year. They have to live somewhere right? Rental Housing gets more and more pricy as they come. Barrie Ontario is the most expensive rental market in Canada presently.
Rental gets expensive, houses look cheaper–especially with the cost of borrowing so low.
In the US–They don’t even know how many people are coming in through the southern border. I’m not sure they are counting.
All the major renovations that were pent up during early Covid are still working through the cue. As material prices went up, and shortages happened, many projects were put on hold. Most builders in the US are still pretty busy. Here in Canada, things are easing.
MATERIAL PRICES ARE AT A HISTORIC HIGH–BUT…
They are not going to get cheaper any time soon. Why so sure you ask?
- Fuel prices have doubled in the past year due to green energy policies–That will not change soon.
- Shipping costs have exploded. From a shortage of drivers to equipment shortages, to supply chain issues to get repairs done. Fuel costs more–and due to a shortage they have to pay their drivers more. There are other logistics issues that I won’t get into.
- Tariffs were increased on Canadian Lumber–which means producers are moving south of the border and they are idling other operations due to shipping issues. As these producers ship less to the US, they have to make up numbers here in Canada.
- People are fleeing the cities, and, there just are not enough country homes to fill the demand. As they sell their city homes to Hedge Funds at the top of the market, they just keep buying up all the building materials because the price really doesn’t matter to these folks.
- Inflation, if calculated the same way we did in 1985 would show somewhere between 25-30%. This means Wages paid to lumber men, drivers and laborers will have to increase. These folks need to be fed and clothed and housed, so, they need a raise.
ENERGY COSTS ARE SKY HIGH AND GOING HIGHER
If the renovation you are planning will increase the efficiency of your home this might be the very best time to renovate.
If you have a rural property and heat with propane, the price has increased by roughly 40% in the past year. They are also ramping up the “Carbon Tax”. That means if heat costs you $500 a month– and prices keep increasing at 25% per year, your renovation could be done with money you would otherwise give to your propane supplier in the next $25 years. Using that math, if you make your house twice as efficient you could save $25k in the next 5 years. (But, using those assumptions–and heating more than doubles in the next 5 years we will have bigger problems.)
SKILLED LABOR SUPPLY IS EASING
This year we are finding more builders that have space in their schedules. Last year you had to scrape the barrel a little to find any builder that would even look at your project. I expect that this is due to the government checks slowing down. When self employed builders were getting those steady checks it was viable for them to sit at home and collect a wage.
A FEW REASONS YOU MIGHT NOT WANT TO RENOVATE TODAY
You think materials prices will come back down…
Compared to 3 years ago materials are crazy town! Maybe this inflation we are seeing will be transitory. Maybe things will be cheaper later. Hey, we could be on the brink of the “Great Depression 2”.
Have housing prices topped out? Maybe. I have heard that commercial space, (previously office space for large companies) is 50% empty presently. Maybe they will retrofit those as lower cost rental space. All it would take is rezoning and a pile of renovations and demand for rental housing would plummet.
ARE INTEREST RATES HEADING SKYWARD?
Are interest rates going to go up dramatically? If you can borrow now and lock in your rate for a few years– It may be worth doing.
If you are in a perilous career and high interest rates would crush your career– maybe increasing your debt level is imprudent. Car dealers, commercial realtors, commercial property investors, middle managers and Realtors often get pinched when the economy crashes.
Chinese and CORPORATE CASH PURCHASED hOMES
Not as many people wanted to move during Covid, especially during the first year. There was a shortage of listings. The stock market was gutted early on and Corporate interests as well as Hedge Funds got into real estate since the price was going up. It looks to me like part of the reason for the price exaggeration.
Recently though, due to the housing crash in China, Chinese investors have been pouring into the US and Canadian market for safety as well as the investment. Their housing market has been gutted. In a communist country there are few opportunities for investment– they have banned crypto currency.
Search for China Ghost Cities for hints as to what happened to their property market. The average property investor has about 5 homes– many in empty crumbling buildings in the middle of nowhere.
A Chinese man needs to own property to attract a bride. Often the whole family puts money into the investment. As their properties plummet, those lucky enough to get out with any nest egg at all are optimistically investing in North American real estate.
Whether or not you should invest in a renovation depends on your situation. If you have cash set aside it makes sense to feather your nest a little, or, if you have a stable career with extra left over and you are finding that you are spending more time at home of late then it makes perfect sense.
Consider your position, then, pull the trigger.
If we can help you design your renovation– Please get in touch.
LW
You can see some of our recent designs (click here)