Year Built

Aging Housing Stock Will Increasingly Require Spending for Renovation

America’s housing stock is increasingly becoming old, with structures typically about 40 years old.  This means that homeowners will likely need to do some renovation/remodeling for structural or aesthetic purposes prior to selling their home, or if sold on an as-is basis, homebuyers may need to undertake the renovation/remodeling themselves.

Year Built

The financial burden of remodeling/renovating a home can be eased significantly by spreading out the renovation/remodeling or doing so on a do-it-yourself (DIY) basis. DIYs can cost less by as much as a half.  For example, based on data from the 2013 American Housing Survey, a bath remodeling/renovation typically cost $3,000 (DIY) vs. $8,221 (professional), a kitchen renovation at $15,000 (DIY)  vs. $35,821 (professional),  and roofing  at $1,800 (DIY) vs. $5,00s (professional).

Room Additions

Undertaking the activity might appear daunting to first-time homebuyers, but it is important to note that these added costs are still lower compared to the price differential between a new or existing home. The price differential between existing and new homes has widened from about 10 percent historically to about 37 percent in 2014.  The median price of an existing home in December 2014 was $209,500, while the median price of a new home was $ 298,100—a difference of $88,600!  Rising construction costs, increasing scarcity of lots, and low level of supply/inventory have pushed up prices of new homes.[1]

Med. Price

 

What this Means to REALTORS®  Many factors come into play in choosing a home, but first-time homebuyers may need to better appreciate the financial benefit of purchasing an existing home as a starting point for homeownership, instead of “saving up for a new home.” In addition to the initial financial benefit of purchasing a cheaper existing home compared to a new one, the homebuyer will start gaining equity which can then be used to “trade-up” to the next home, possibly a newer home.


[1] “Cost of Constructing a Home”, NAHB, http://www.nahb.org/generic.aspx?sectionID=734&genericContentID=221388&channelID=311.The National Association of Home Builders attributes the increase in the cost of new home construction to rising construction costs and larger house size.  Construction costs are increasingly being pushed up by the rising cost of building permit fees, impact fees, and water and sewer inspection. The scarcity of land/lots has also pushed up the cost of lots on a per unit basis (per square foot) , but developers have compensated for this by reducing lot size.

 

Comments
  1. Gay,

    Do you happen to know what percentage of the older, mostly obsolete housing stock you note becomes renovations and what % are torn down and rebuilt as new homes?

    We understand that senior citizens will be selling about 25 million homes between now and 2030 and figure many of those seniors are the owners of the aging housing stock (31% 55-95+ years old)…….I’m wondering if maybe you tied the two together and came up with a number we could use to help forecast the market size for teardowns over the next 20 years or so?

    We’ve seen numbers from NAR and NAHB who predict teardowns are about 27.5% of annual housing starts….but, it would be great to see the projection from another view point i.e. aging housing stock/senior citizen selling…

    Make sense?

    Figured I would go to the source :)

    Thanks,

    Thanks,