We just had another hurricane with major property damage, so even more demand for materials and labor. I think prices will continue to increase.

Is this true only in the SE, or will prices increase across the board nationally? (We in the West/Midwest).

From the expert economists, there will be a slowing or "leveling off" in 2019. It will not be a repeat of the 2008 "meltdown" as the circumstances that caused that meltdown aren't present now. As for costs, overall price to build a home rarely goes anywhere but up (even if some individual material prices decrease). Development costs to get building lots steadily increases due to constant increase in regulation. Also, there is a huge labor shortage in the construction industry, many who went out of business in 2008 never came back in. Labor issues are getting worse, not better, because the younger generation wouldn't consider a trade for any amount of money (look up recent NAHB survey on this, youth would rather take a lower paying job than a higher paying construction job). So, in a nutshell, waiting it out for rock bottom prices is probably not the best strategy. It would be a better question to ask whether your home justifies the reno work you are planning (what are the comps in your area) or whether that even matters to you if you aren't going to resale in the near future.

Thank you for your thoughtful response. I agree with your suggested analysis, and we have
done just that. I think we are in
agreement that the reno makes sense from an economic perspective, or to the
extent that it does not, we are willing to eat the cost for the long-term
housing for our family. That said, we
bought our first house in 2005-6, right at peak, and we did lose some money
when we sold. I don’t think we would
have done anything differently, but it was a bitter pill and makes us a bit
more circumspect about pushing forward with this major expense. I think we are in agreement that we will
delay further pricing until 1Q 2019 (besides, we still have some design issues
to work out). It is a question of
whether we wait longer than that. I
think we should push forward, but see down the road kicking
myself saying, uuggg, we did the reno at exactly the most expensive time.

Have you ever waited to buy an automobile until prices went down...?

Fair question. Personally, I own my cars for 10+ years and buy a (used) car when it is necessary. I have tried to time car purchases for the last week of December, as dealers have incentive where I live to move cars out of taxable inventory by 12/31. So, I guess I am looking at the same timing question -- trying to be smart about it. Maybe it is just not applicable in the house reno area.

"...trying to be smart about it. Maybe it is just not applicable in the house reno area..."

Trying to make smart decisions and to save expenses is always a great idea.

But there are so many moving parts and diverse, unrelated factors in the mortgage financing, land acquisition, house design and construction biz.

Prices for labor and materials seldom go down, and experienced, skilled labor is always booked up long in advance. Then there's the effects of weather...then there's how one actually designs a house and prepares proper and complete bid-construction documents...then...then...then...

Good luck on your project.

Thanks for your insight. I don't think we will regret doing the reno. I just hope we don't regret the timing.

You will only regret the timing if you are looking at it like an "investment" and plan to flip the house. If you plan to live in the house for 10, 20, or 30 years then the timing becomes less important. You also need to be sure that you aren't over improving for the area.

You just never know what the markets will do. We bought in 2010 at the bottom of the RE market in my area. We didn't plan it, it was just luck that that is when we returned from an overseas relocation. I was afraid to buy and thought the RE market would fall further. My area had few foreclosures and most people were waiting out the dip in prices and not that many houses listed for sale. We bought and our house has appreciate about $150k per year. Crazy CA markets! We aren't selling so it makes no difference. Rent for a similar house, if you can even find one, would be close to $10K per month, so purchasing made sense anyway. The town has top rated schools so demand for housing stays pretty constant.

It seems you have 4 choices:

1. Build now and prices go up later: you realize your dream now and you saved money

2. Build now and prices go down later: you realize your dream now, and may feel a bit bad that you could have done it less expensively

3. Wait to build and prices go up: you defer your dream, and you regret your choice as you lose money, too

4. Wait to build and prices go down: you defer your dream in exchange for taking some comfort in saving money

I'm biased, but I don't believe in deferring my dreams. I love the house we live in and, while I'm financially very conservative, we made the decision to buy it within 15 minutes of seeing it. A couple of years after we bought, it went down in market value by 25%, but I didn't care as I wasn't going anywhere and I knew that there was no actual loss unless we sold at that time. Today it is worth about double what we paid, and I still don't care as I'm staying here and not planning to sell.

If you can afford your project, I say: just do it now. The pleasure of being in a house you really like should far exceed any feelings that, if you had just guessed right, you might have saved some money, too. And I guarantee that if you don't build now, and it costs a lot more later, you will feel much worse than if you build now and later find you might have done it a bit more cheaply.

In my experience, housing market prices fluctuate, but cost-to-build prices rarely do anything but inexorably creep up. If you expect to live forever, it might make sense to wait and hope to catch a deal, but if you are mortal like most of us, seize the day and build so you can enjoy it sooner.

Don’t wait … things haven’t slowed down. I don’t think costs will go down anytime soon.

Corporations are about done with trying to absorb the costs of the tariffs, and generating nonprofits for the stockholders. The stockholders won’t stand for that. They’re taking cost cutting measures, including downsizing. Inflation is getting ready to rise bigly. And demand for building materials and skilled labor are through the roof, with both costs rising.

I don’t see costs flattening out any time soon.

Thank you to
everyone for your comments, which are very helpful in framing the issues. We intend on living in the house at least
until our youngest is out of the house in 15 years. Not planning on flipping
anything. I can't help but think of the reno as an investment, although I
appreciate that part of the investment is the benefit of living in the
renovated house. If I wait and spend $1 (add 0s here) less on renovation, that
leaves me with $1 more in my pocket for other purposes/investments. DH’s
thoughts are valid as part of our due diligence. In the end, however, whether
it makes sense to wait depends on whether it is reasonable to anticipate wide
swings in the cost of building. My sense is consistent with others posting that
the cost of building goes up, flatlines, goes up, flatlines, etc. Short of catastrophic economic disaster, the
cost does not go down. So, it makes
sense to continue on course and hope that factors beyond our control work in
our favor.

Just in regards to the hurricane - typically the price hike is regional and lasts 2-4 months, from my husband's experience in the materials and building industry...

whoaman-

Best of luck, whatever you do. Just remember that you may never really know the answer on costs. It's not like a tv with a sticker price. There are many factors besides materials costs that affect a building project, and what your final cost is compared to what it might have been at another time can be pretty murky. That's why I suggest getting on with it rather than continuing to perseverate on what-ifs... ;-)

Costs only going up. Low-wage labour, especially in the US south, is declining as Mexican immigration drops, Wall or No Wall. As well, illegal immigration was down 25% in 2017 vs. 2016. Then, of course, there are tariffs, which cost consumers not exporters, money, further raising costs.

Given 2 recent, major hurricanes with massive damage, prices are not going anywhere but up.

Construction costs didn’t go down much even in the. crash. House values did in many (not all) parts of the country, but not labor as much. Costs and values are always local but I would not expect them to go down a5 all and only continue to increase or hold steady.

I've seen costs go down significantly 1x between 1985 to present. I think is was November 2008 when the lumber mills decided to clear out inventory well below cost of harvest prior to mothballing and trade contractors were just trying to keep a few employees busy while the bosses also put the bags on. I think that happened also when I was a kid.... so once every 30-40 years.

Understand the motivations of people who give you advice. Financially, there is little gain to renovating a home, often you get back less than 100% of the cost. On the other hand, its the nature and purpose of financial advisors to have you invest your money, whether or not they get a commission. I don't know many bean counters (one time bean counter here) who spend a lot of money on homes. Its just not in their make up.

People build custom homes & renovate existing homes as the goal or reward for their financial success or ability. Other people buy new cars, build great retirements, put their children through college, etc. Some of the lucky ones get to do it all.

Had a lender last year talk a client into a refi to lower their current home payments instead of initiating their construction loan, putting off their build 6 months. Costs escalated $50K. They are now staying in their original home while I toss out the plans. A few clients have delayed waiting on large expected income changes that made it easier for them to build, otherwise, construction costs usually escalate faster than inflation and income.

Over the past 12 months, lumber prices blew up, then settled back some, but in the mean time a few other materials increased in cost offsetting the lumber adjustments. This is normal... construction costs normally increase over time, annually at a rate higher than CPI sometimes plateauing before moving again.

In a renovation, its likely that lumber is a less significant portion of the build than in my new construction projects. Lumber composite index is a combo of panels and solid lumber. Panels are in high demand after hurricanes. Solids can be highly impacted by tariffs and/or fires. Both are impacted by ever increasing fuel taxes and required diesel upgrades in CA.

"Reworking" a plan usually results in scope changes that could be significantly more or less than month to month cost changes.

Bottom line. Get current bids if the project is finalized and ready to permit. Don't guess.

We built a carriage house (detached guest house with 3-car garage) in 2011 and we didn't pay less because it was the bottom of the market here in my area of LA. What did happen was that we got a fair bid from one of the better builders in our area and he was able to start as soon as the plans were stamped. The builder usually likes to do bigger projects but at that time he was happy to accept smaller projects to keep his crews working.

Most of the builders were afraid to put their own money into spec homes in case the RE prices dropped more. Looking back they all wish they had extended themselves and picked up possible tear downs at lower prices! On the other hand most sellers in my area were sitting tight, unless they really had to sell, so there wasn't that much inventory. No one had a good crystal ball!

I know things were very different in other parts of the country and even other parts of CA.

Most houses in the U.S. are exceptionally poor 'investments'. And new houses are worse.

While a few neighborhoods around the top 2% will retain or increase in value, most neighborhoods and the houses in them decline over time. There are 3 key reasons for this;

Design - House design in the U.S. is similar to the clothing fashion industry with new trinkets and doables every year. People looking for houses want either the newest designs or the most timeless traditional. Nobody really wants the stuff in the middle like 1980's or 1990's design. So, the only designs that hold value are the the very proven traditional and a very few newer designs.

Construction Quality - Stick built value engineered houses in the U.S. decline over time. After 40 to 70 years it's often cheaper to tear them down (so $0 value) and build new. Houses prior to the late 1960's are sometimes of better quality and worth renovating, though not always. The jury is still out on more recent construction methods.

Location - Suburbs are a new fad less than 100 years old and are quickly falling out of favor with home buyers. Increasing numbers of people want to live where they can walk or bicycle to grocery, pharmacy, dinner, and school. They don't want to spend a lot of time in their car and have to drive a long way for anything and everything. They don't want to have to deal with a lot of traffic, they don't want to hear the noise from it, and they don't want to have to try to cross multi-lane roads of heavy traffic when walking. A few suburbs are starting to get this and re-design to be more of a welcoming village, but most are still suburb-like which is increasingly unappealing.

@opaoneI disagree regarding location. Where I live most people I know are moving farther out of town so they can have more space. They don't care about being able to walk to locations and know they will have to drive farther for things. Also I disagree about homes 40-70 years old having no value. As always real estate is very local. You can't make these sweeping comments and think it applies to all areas.

Opaone, in your Location paragraph, your description of what people supposedly want, actually rules out most places! Most of your wants come with the negatives too. Traffic is everywhere these days. Good luck finding Utopia Village!

Opanone, are you really in the US? Which state? Which city? Or you just had a little drink right before lunch? :-).

I research and write about culture, transportation, land-use and planning so I know the stats somewhat well. Within a small group of friends, particularly baby-boomers, you may see something different from what I outlined above. But on aggregate and largely across the U.S., except Detroit, the quite strong trend has been and increases to be a migration to urban centers and secondarily to suburbs that are making themselves more walk/bike friendly.

What we're seeing, among those above the 50th percentile average annual household income (about $60k), is that when they move their first choice is either an urban location or a walk/bike friendly suburb. They typically go for the walk/bike friendliest place they can afford. The result is that, generally, the less walk/bike friendly a community is the less desirable it is and the less likely that homes are able to hold their value. Like all stats there are exceptions but overall that is what we're seeing.

Following this is a trend of knowledge worker heavy companies that have typically been migrating to suburban locations that have now begun to migrate back to core cities or to walk/bike friendly suburbs with good transit (ideally tram rail) links. This is the case with the Google's and Amazon's of the world as well as the 5 person startup or 2,000 person bank who wants to be able to attract workers.

For more info you can start with a search of 'urban inversion' or 'suburban demographic shifts' or similar.

You seem to be focused on large cities - not the majority of America. Minneapolis just added a tram a few years ago and it has very limited service areas. I live in a city of a little over 200k now and we barely have bus service and nothing I would rely on. What I have seen here of people of all ages is the want to live farther our vs "downtown". You can't compare Chicago and NYC living to small towns.

Opaone is pretty much correct, though I might put the number closer to 5% vs 95%.

That is not to say you cant make money flipping a house at a particular point in time in, say, Reading, PA or Terre Haute, IN. But long term...

Minneapolis just added a tram a few years ago and it has very limited service areas.

Minneapolis put in a light rail (LRT) which is quite different (and inappropriate for what Minneapolis is doing). LRT costs nearly 3x what tram does and uses massively larger stations that have a negative brutalist impact on neighborhoods and make getting on/off more difficult. A tram station is more like a nice bus stop. Most European cities have trams. Seattle has a tram. Minneapolis has LRT.

We look at cities of all sizes as well as areas between cities. My location comment above is for MSA's over about 200k (which is, interestingly, the top 200 metro areas in the U.S.). You are correct though that it applies less to smaller MSA's. OTOH, it applies to Waterloo Iowa which is about 150k people and Mankato MN which is about 100k. Both of these have somewhat highly educated workforces though (for cities of their size) and it is more highly educated who are mostly driving the move to core urban areas and walk/bike friendly suburbs.

Waterloo may also have been influenced by nearly a decade of focus on people living healthier 'blue zones' lifestyles so they have a higher percent of people who want to walk/bike.