More Remodeling is Bad News for Our RE Market

MetroStudy released their 4th quarter Residential Remodeling Index Report on Friday. This report details activity in the home remodeling business. The RRI reached a new all-time high in the 4th quarter at 111.3, a 4.9% increase from a year ago. This is the 23rd consecutive quarter of year-over-year gains since 2011.

Second, MetroStudy’s forecast for 2018 has strengthened to an annual expected increase of 5.2% this year, with continuing gains in 2019 and 2020. Why? They cite 3 reasons. First, we have a strong economy now. Second, several natural disasters last year will cause remodeling to increase. Third, rising mortgage rates will cause more homeowners to STAY PUT and remodel the homes they currently have.

I have been citing the 3rd factor for over a year in my class “Is the Denver RE Market in a Bubble?” as a reason why our inventory will remain low and may continue to shrink. Here is a personal example, from my own home. Our current principal and interest payment at 3.50% for 25 year term is $2087 a month. If we were to buy our home today at today’s prices and rates, our principal and interest payment for 25 years would be $2901 with 10% down plus mortgage insurance of $130 for a total new payment before taxes, homeowners insurance, and HOA dues of $3031.That’s an increase of nearly $1,000 a month to buy our home today compared to 4.50 years ago!

Thus, why would we move? Thus depressing inventory levels which supports higher home prices.