Low housing inventories and increased demand for homes does not affect housing prices only — it also affects construction demand and pricing.
Right now home inventories are low, and home prices are up. Contractors and developers are busy trying to accommodate the demand. They are having problems finding enough craftsmen to cover all of the projects they are taking on.
Tradesmen and contractors are busy with new home construction, but they are also busy with remodeling projects.
When home values go up, owners start more renovation projects. Homeowners feel richer. They feel more comfortable paying for that major home improvement, and, as an added incentive, their home equity can be tapped to cover the costs. This increases the demand for contractor services.
This may be exactly the wrong time to do that renovation project. The cost of construction is going up across the board. Labor and material costs are up, and contractors are making bigger margins.
Someone recently shared with me an estimate they got from one of the large home-improvement stores. They simply wanted their tub and their one-piece tub wall surround replaced. It was a one-day job. I did some research and learned that material costs were less than $2,000. Two tradesmen for eight hours at $50 an hour is $800, but their bid for the work was $6,000.
I told these people to cancel that work and call some local contractors directly, but it was too late. They had signed a contract, and they would have had to pay 50 percent of the value of the contract to cancel. It was unfortunate, since they were an elderly couple on a fixed income. The couple of thousands of dollars they could have saved would have been a huge deal to them.
I recently spoke to a tile contractor who works for a different big box home-improvement store. He tells me they are charging $25 per square foot to set floor tile; that is just labor costs. Around $12 per square foot was the premium price I remember even back in the midst of the last boom. If a tile setter can make $25 a square foot, then he or she can easily make more money than most doctors and lawyers.
Material prices are also skyrocketing. Hardwood is a prime example. Last winter I bought basic solid oak wood flooring. It was not on sale. It was the company’s basic line — it is always in stock, and the salespeople push it. By summer of last year that same hardwood flooring had increased in price by 30 percent — and it stayed there.
The skyrocketing price alone is a bad thing for the consumer. To make things worse, work quality often goes down when contractors get busy. Essentially, you pay more for less.
I have noticed in my projects the work is taking much longer to get completed, and the home inspectors are finding a lot more serious work deficiencies.
This is not the first time I have seen this show. This same problem was near epidemic in the last real estate boom. Contractors were naming their price and terms. Consumers were taking what they could get. They did not have much leverage since it was much easier for the contractor to find another job than it was for the client to find another contractor. We are still feeling the effects of poor quality craftsmanship from the previous real estate boom.
Over the past decade I have seen a lot of bad construction work dating back to the last construction boom. I have walked through a lot of half-done projects that would require a lot of rework to complete. I have heard a lot of horror stories from the homeowners.
Remodeler magazine recently published an article “Boom Town Falling Down.” The article points out how the construction and real estate boom led to a significant increase in structural deficiencies.
The increased demand, profit margins and labor rates do not go unnoticed. These are the times when the less reputable or at least the less skilled come into (or back into) the market. This abundance of work and inflated rates incentivize people to leave what they are doing now and strap on a tool belt.
That is not just in contracting, by the way. The shysters and the less experienced come out to get a piece of the action as real estate investors, real estate agents and other housing-related professions. I wish all the well-intended entrepreneurs the very best, but I beg the consumer to be cautious in times like these.
If you are considering a major renovation project, you might really consider waiting. The market will turn — it is just hard to say when. The down side is it could take years before it does. Eventually, I promise you, contractors will be grateful for work again, and the market will once again wield its natural selection powers to trim out some of the less reputable and or less knowledgeable contractors.
If you just cannot wait to renovate then please get multiple bids, many multiple bids. Check references, a lot of them. Make sure the references are recent, and check their online ratings.
I just had an asphalt contractor on one of my projects. I did not hire him. My general contractor did. The contractor was to extend the driveway and reseal the existing portion of the driveway. When they showed up to do the work they told us the cost was $700 more than they originally quoted. They said we were mistaken about the price, but I do not know how. It was a week before closing, so we had to eat it. The driveway ended up being three feet shorter than we agreed, and they did not remove the excess dirt they dug out for the new driveway. They did not even pull the weeds or clean off the existing driveway before they applied the sealant. There were weeds growing through the crack of the driveway. The layer of sealant was so thin that it did not even kill the weeds; I think they grew better, in fact.
My general contractor called the asphalt contractor and asked him to come back and reseal the driveway. He shouted, “I’m not your landscaper; do your own driveways from now on.” My general contractor says he had given the guy a lot of work in the past; clearly, he does not need it. I pulled up his online reviews, and sure enough, they were horrible. The guy has more work than he can handle right now.
If you cannot wait to renovate, then it might be time to consider doing some work yourself. I normally advise people to be very cautious about taking on work themselves. It is not as easy as it looks, and most people way underestimate the financial, physical and emotional costs of renovation projects. However, everything is a cost-vs.-gain proposition.
The loss of a few weekends might not be worth a few hundred or even a few thousand dollars, but is it worth saving $10,000? Only you can decide what a weekend is worth to you. A few years ago it was easy to get a basic bathroom remodeled for $5,000. Now contractors do not even hesitate to bid $15,000 for that same job. That is no exaggeration.
Most homeowners could take on a basic bath renovation with a little research. You can always hire a plumber just to install the tub and hook up the vanity plumbing if you are not comfortable with that.
If you do choose to take on a project yourself, there are more resources available to the DIYer than ever before. Take a look at the free how-to videos posted online. Be a little cautious. Some of those YouTubers may not be professionals in their field. If you need more reputable sources or more in-depth instruction, try the trade magazines and associations that offer instructional videos.
On a positive note, I do not think there is anything better for the soul than completing your own home renovation project. Granted, there is not much harder on your soul while the project is underway.
Justin Pierce is a real estate investor and real estate agent who regularly writes about his experiences buying, renovating and selling houses in the Washington area.