Update: Are Renovation Costs Still Increasing?

by Nate Moore

As a follow up to last year’s article “Are Renovation Costs Still Increasing” we’ll explore the current renovation market environment and evaluate the data.

With lumber prices falling, are costs still increasing?

While lumber has come down in cost, it has only come down in relation to peak pricing over the last couple of years. It has, in fact, settled slightly above pre-pandemic prices. Additionally, lumber is only a small portion of the overall cost of renovations.

So are costs increasing? Let’s look at the data.

One helpful chart (above) published based on the Mortenson Cost Index, shows consistent cost growth since the beginning of the pandemic. While different areas of the country have experienced this growth at slightly different rates, the upward trend is clear.

Perhaps the most compelling indication of cost growth comes from the US Census Index for New Single-Family Houses Under Construction (above). As the closest analogue to large-scale residential renovations, this index is especially pertinent.

The increase in cost in 2022 alone is a staggering 16.8% or 16.6% (Fisher vs. Laspeyres calculation basis). In a market segment with historically sub 4% annual cost increases, represents a profound surge.

So are costs still increasing?

Yes. Prices are definitely increasing. We feel it everyday from the grocery store to our building finish materials. No one can say how long this trend will continue, but building as a whole is getting more expensive at a rate faster then the industry has seen. 2022 marked the largest increase in construction cost since the US Census data began in 1964.

Ken Simonson, chief economist at Associated General Contractors of America noted:

“The coming year will probably bring selective reductions in materials costs and supply chain bottlenecks but despite some easing for builders, he still expects that construction input costs are likely to continue rising more than overall consumer prices.”

While projects may not be getting more affordable, we agree that supply chains have improved. This means clients are getting back in their newly renovated homes more quickly if not at reduced cost.