We are in the midst of a strange economy – meaning no one is confident about what to expect in 2023. Fears of a recession are looming large, and even though home prices are falling, potential buyers are hesitant to pull the trigger.
Inflation and loan interest rates in a slowing real estate market may mean the remodeling industry could get a boost, but coming off a year like 2022 where investments saw their worst performance since the 2008 financial crisis, available assets may be limited.
In spite of the confusion, how much will you want to budget for remodeling in the coming year? Let’s take a look.
Renovation Trends in 2023
Marketplace uncertainty is causing some to predict an increase in home renovation projects, but the remodels may be smaller than what homeowners have pursued in less turbulent times.
Interior design changes, updating spaces, and getting creative with the home’s current footprint will surpass rebuilding or building additions.
Factors That Affect Renovation Costs
Supply chain issues and labor shortages are still at play in 2023. Lumber prices should stabilize but won't be returning to pre-pandemic levels and will fluctuate with demand. The cost of building materials overall, however, is slowly rising.
Budgeting for Your 2023 Renovation
Your primary consideration in budgeting for a renovation is sufficient return on investment (ROI). The return may be far less than what you spend depending on your home’s location, the project type, the real estate market, and the timing.
ROI is important in a home renovation as it is the only method of investing that gives you two types of value: the actual ROI and improved quality of life with a new space in your home. By renovating, you are putting work into an appreciating asset that. Depending on when or if you sell your home, that money will stay with you.
On average, home renovations provide a 70% ROI. If you plan on staying in your home long-term, however, you have more wiggle room. The longer you stay in place, the higher the return if your renovations stand the test of time. In other words, go for traditional/classic renovations over trendy or luxury ones. Quality craftsmanship will garner the highest return.
There is no tried-and-true mathematical formula for calculating the ROI for home improvements. The only effective way to calculate home value is with an appraisal. This is usually only done when you’re buying and selling a home, so it might be tough to correlate the calculated value with a renovation project to see how they impact the value.
The trend for 2023 is leaning toward minor renovations, such as individual room remodeling or updating spaces. Expect to spend more on the same home improvement projects than you would have before the pandemic.
Renovation Costs by Project Size
Ironically, the smaller your renovation project, the more it will cost per square foot. This is because there is not as much space to divide out non-material costs like labor, fuel, and transportation. A whole-house remodel will cost between $15 and $60 per square foot, while a single kitchen or bath remodel can have a price tag of $100 to $250 per square foot. Putting an addition on your home runs between $90 and $200 per square foot.
Renovation Costs by Project Type
Despite higher per-square-foot pricing than whole-house renovations, smaller projects cost less overall, which could make them more appealing in an uncertain financial environment.
Individual Project Costs
Here are some average prices forecasted for upgrading individual home features in 2023:
HVAC upgrades: $8,000
Plumbing upgrades: $4,000
Window replacement: $2,000
Bathroom Remodeling Costs
Bathrooms are one of the most popular targest for remodeling. The average bathroom remodel cost is around $10,000 but can range from $2,500 to $30,000 depending on the scope of the project and your choice of fixtures and amenities. Here's how the average material prices break down for each category.
Plumbing work: $1,000
Fixtures and vanity: $5,000
Kitchen Remodeling Costs
Cabinetry is typically the costliest part of a kitchen renovation. Labor and new appliance costs are also significant. Here are the average costs for a typical $30,000 kitchen remodel:
Cabinets and countertops: $12,000
Plumbing and lighting: $2,000
Drywall, doors, windows, and painting: $3,000
Design and miscellaneous: $1,000
Cost to Build an Addition
Building an addition onto your home is a major renovation even at the smallest scale. The type of addition and its square footage have varying degrees of impact on the total cost. Digging and pouring a new foundation area raises any project price by about $4.25 to $6.25 per square foot. Kitchen and bathroom additions will have extra costs associated with new or extended plumbing.
Adding a living room space or bedroom is less expensive; however, additional HVAC requirements should be considered whether or not your current system can handle the extra load or if a larger system is required.
The average cost of putting an addition on a home is around $46,000. But the typical range is between $5,000 to $150,000.
Exterior Remodeling Costs
Adding outdoor living space has gained in popularity since the pandemic. Installing a backyard kitchen, deck, patio, or pergola costs far less than renovating your home.
Although high-end outdoor kitchens can set you back over $50,000, a basic build with all the necessities for cooking and entertaining is between $2,000 and $10,000.
Adding a basic deck built of pressure-treated wood will cost between $15 and $20 per square foot, while a simple patio runs between $8 and $20 per square foot.
If all your home exterior needs is a new look provided by a paint job, the average price is around $5,000 (for a 2,000-square-foot single-story house) or $2.50 per square foot. Homes with more than one level will be a higher price per square foot. Virginia estimates are around $2.85 to $3.00 per square foot.
Remodeling Price Ranges
Interior Paint - $2,000 - $10,000
Bathroom Remodel - $2,500 - $30,000
Kitchen Remodel - $13,000 - $39,000
Addition - $5,000 - $150,000
HVAC Upgrade - $5,000 - $12,000
Basic Outdoor Kitchen - $2,000 - $10,000
Deck or Patio - $2,000 - $11,000
Pergola - $1,300 - $10,000
Exterior Paint - $2,000 - $13,000
DIY vs. Contractor Pricing
If you're willing to trade your time for some cost savings, DIY projects might be your answer for saving money or extending your budget to include a few luxury items in your plan.
How much you decide to budget for your home renovation in 2023 may come down to how much elbow grease you're willing to extend. Labor shortages continue to cause delays and price increases for contractors. Labor cost percentage on a typical kitchen remodel runs between 30 and 35 percent, while contractor markup on already-rising material prices can add another 10 percent.
Keep in mind that there's a price to pay for doing it yourself over hiring a general contractor. You'll be responsible for obtaining permits and being home for the inspectors when the time comes. Also, you'll likely be giving up several weekends performing potentially demanding labor tasks. Additionally, you'll need to learn safe work practices if you're not already an avid DIYer.
In some cases, hiring a contractor who is willing to share the workload with you might be to your financial advantage. Perhaps you could take on some of the less crucial renovation tasks, like cleanup, gathering materials, or doing your own demolition work, and hire an electrician and plumber to help with more specialized projects.
How to Save Money on Home Renovations
Beyond committing to some DIY effort, there are other ways you can save money on your renovation project.
Stick to your budget. Overruns can get expensive quickly.
Pay out of your savings account instead of paying interest on a renovation loan. You’ll be that much farther ahead of the money game.
If you can reuse salvaged items, you can save big over buying new ones. You can find inexpensive and possibly vintage household items at building material recycling stores or for sale online.
Purchase discount, lower-price materials where you can get away with it and spend the difference on more visible items. Consider foregoing the fancy appliances in exchange for more luxurious countertops or a high-end faucet. Similarly, you may want to skip hardwood floors in favor of more budget-friendly laminate ones. Keep a lookout for sales as well.
You may be losing money if you're simply throwing everything in a dumpster during demolition. The dumpster rental costs money, so you may want to consider putting some of your old furnishings or building materials up for sale on a neighborhood classifieds website or donate them to charity for the tax write-off.
The Bottom Line
Despite seeing some materials costs backing off the sharp increases we saw during the pandemic, prices will continue to rise through 2023 but at a slower rate than in the recent past. Smaller projects may be the order of the day in 2023 until the economy can recover normal production and distribution schedules.
REMEMBER - If you make a renovation or improvement to your home, be sure to contact your insurance provider to ensure your home has adequate coverage!
If you are not yet a Mutual Assurance member, get a free, online, 5-minute estimate.
It is one of the smartest financial decisions you'll ever make,
and the sooner you join, the more you'll save.
Sources: Hunker, Renofi, Togal.ai,