The pandemic has wreaked a particular kind of havoc on home remodeling. Increasing demand for construction projects collided with material and labor shortages, leading to a home improvement backlog that lasted until 2022.
“The pandemic has taken a very big hit on everything, but housing in particular,” says Abbe Will, associate project director of the Remodeling Futures program at Harvard’s Joint Center for Housing Studies.
Renovating this year could be just as expensive and stressful a process as it will be in 2021. With the Federal Reserve expected to hike the federal funds rate several more times this year — a move that’s pushing interest rates higher — funding may seem like it appear even less attractive after a renovation .
Here’s what tough remodeling conditions mean for DIYers this season and how you can prepare.
See also: Home construction is improving as homebuilders work off the permit backlog — but they are under pressure from inflation, labor shortages and rising interest rates
Expect inventories to remain low
Finding a contractor and the materials for a remodel can be difficult this year. Once you do, both will likely cost more than they did before the pandemic.
Labor and materials are scarce, which is a large part of rising costs. None of those issues are expected to be resolved this year, says Paul Emrath, vice president of surveys and housing research at the National Association of Home Builders.
The construction industry has a labor problem that existed before the pandemic, Emrath says, but it has been exacerbated as workers quit or fell ill and were unable to work on construction sites over the past two years. This means that even if people go back to work, there will probably still be too few construction workers.
Building materials faced a new problem during the pandemic. Supply chain problems spreading through many industries resulted in unprecedented material shortages, with all building materials in short supply at once, Emrath says.
Material shortage is the biggest driver for higher conversion costs. Solving problems in the supply chain could reduce costs; However, “nobody really expects that to happen for materials in 2022,” he says.
Cash: A completely updated 1950’s home in Highland Park, Texas is selling for nearly $8 million
Homeowner demand could taper off
The pandemic triggered “phenomenal demand” for remodeling projects, which has increased every quarter since late 2020, Will says.
Last year, remodeling spending rose 9% year over year, and Will says it’s expected to rise 17% this year. Historical compound annual growth is about 5%. Will attributes the growth to many factors, including employees working from home, delayed projects from 2020 onward, aging homes, nesting of new homeowners, and preparing for natural disasters.
Towards the end of the year, however, spending could increase more slowly as borrowing against equity becomes a less attractive option. Property values are expected to rise steadily and not skyrocket, meaning homeowners won’t build equity as quickly as before. At the same time, Will says that the Fed’s expected rate hikes will raise interest rates on home equity loans and lines of credit.
“Higher interest rates for homeowners interested in tapping their home equity or using other financing methods could reduce some of that demand, which then reduces some of that pressure,” Will says.
Related: How to avoid decision fatigue when remodeling
How to plan your makeover this season
Neither Will nor Emrath see any reason to put off a renovation in hopes that next year will make it easier or cheaper. In fact, Emrath says rising interest rates could be a signal to start a rebuild sooner or later if you plan to fund it.
Will’s advice to homeowners remodeling: Be flexible with materials and your schedule.
“Be patient when working with contractors and stick to their schedule, and be as flexible as possible when they might be able to work with you,” she says.
A delayed project could be an opportunity to build up your remodeling savings. Paying cash for discretionary and non-urgent purchases is a better alternative than going into debt to make them, says Jay Zigmont, a Mississippi-based certified financial planner. It is also an interest-free financing option.
When you decide to get financing, look for the cheapest borrowing option, says Zigmont.
This may currently still be equity financing, which often has single-digit annual percentages. A home equity line of credit could work well for a project with a changing schedule because you can draw money as needed.
Personal loans are available for homeowners with little or no equity. Interest rates range from 6% to 36% — higher than most equity financing, but lower than credit cards for those with strong credit ratings. Loan amounts for qualifying borrowers can be up to $100,000.
Zigmont recommends upgrading gradually if you want to see progress this year but don’t have enough money to pay for a full renovation. Start with what you’re most excited about — like new appliances or tile — and consider saving for the rest.
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Annie Millerbernd writes for NerdWallet. Email: email@example.com.