Television networks are awash with home renovation shows that sell the promise of the fixer-upper: a rundown house with good bones in a great location that, with a little imagination, a lot of elbow grease, and a healthy renovation budget, transforms into the envy of the neighborhood (and builds some equity in the process).
Unfortunately, that promise is now meeting the reality of an ultracompetitive homebuying market. Aspiring renovators are less likely to find a cheap fixer-upper these days, especially in some of the country's hottest markets, according to a recent analysis by Porch.com, a website that connects homeowners and home improvement professionals.
In at least 10 U.S. markets, the cost of the average fixer-upper is $600,000 or more, according to Porch's analysis of data from real estate website Redfin. In three of those cities — San Francisco, Los Angeles, and San Jose — a fixer-upper will run you well above $1 million.
While Porch's analysis uses averages instead of comparing the cost per square foot of fixer-uppers versus turnkey homes, it offers a bird's-eye view of just how competitive and expensive the housing market has become.
Even in some less pricey markets like Kansas City, Las Vegas, and Phoenix, a fixer-upper is only 3% cheaper than a move-in-ready house, the analysis finds. In Boston, the average fixer-upper was only 1% cheaper than a turnkey option.
These prices — even for houses that need work — are fueled by overwhelming demand from would-be homebuyers and an overall lack of supply, says Max Anderson, an economist at Porch.com. "Look at the difference in demand," he says, citing the post-pandemic jump in home sales: Closed sales of existing homes in December 2020, a traditionally slow time in real estate, were 22% higher than they were in December 2019.
"I would not be surprised if we see that similar sort of 20% to 30% year-over-year increase [in 2021], based on how this year is trending so far," Anderson says.
Even for aspiring renovators who can secure an affordable fixer-upper, the price tag for a makeover may not be worth it. Renovation costs have increased significantly during the pandemic, driven largely by hiccups in supply chains and an overall shortage of labor, Anderson says.
The price of lumber, for example, continues to skyrocket — up more than 67% this year alone — due to increased demand and decreased supply. But while that's a cost that everyone, regardless of location, is having to factor into their budget, labor can be a bigger variable in pricey locales.
"Materials tend to be roughly equivalent in price no matter where you are in the country, so your lumber is going to cost the same in San Francisco as it does in Flint, Michigan, broadly speaking," Anderson says. "Labor, however, can be three or four times more expensive in a major market."
Neither high home prices nor hefty renovation costs appear to have put a damper on the market for home makeovers. If anything, demand for rehabbing existing spaces has increased during the pandemic.
"Optional things, like doing a kitchen remodel or putting in a fence or deck, spiked up for a three-month period in the summer last year, about 30% or 40% above normal seasonal levels," Anderson says. "They've remained 15% to 20% above normal levels since then and have not gone down."
The fast-moving U.S. vaccine rollout has only increased demand, as once-wary clients are able to safely welcome workers into their homes, says Tiffany Brooks, a Chicago-based designer and host of HGTV's "$50K Three Ways." "[Since] the vaccines rolled out, people are becoming more and more comfortable having us in [their homes] on these renovations," she says. "January is a typically slow month for our design firm," but this year, "the phone was ringing off the hook for in-person design work."
Anyone looking to renovate right now needs to not only budget more money for their project, but much more time, Brooks says. She suggests adding 30% to 40% to your budget for contingencies.
"You will need it. There will be mistakes, and there will be overages," she says. "In today's market, you have to be prepared to wait. Your renovation is not going to take four weeks — your renovation is going to take upwards of about four months, and then five."
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