New challenges for house renos
With house prices falling, is it still worth spending on renovations? Joanna Davis goes to get some answers.
Kiwi homeowners have been going crazy renovating in the past two years, but now that the housing market has turned, the renovation boom seems to be winding down, too.
The average national house price dropped 2.2% over the three months to the end of April, according to Quotable Value (QV) figures, and some analysts have suggested a drop of up to 20% is coming. So it’s no longer as clear whether you’ll recoup what you spend on your home, if you’re thinking of selling in the near future.
Other factors have also changed: The reno boom was fuelled by low interest rates, and high savings rates as people could not travel internationally. People were also valuing home more after spending more time there during the Covid-19 pandemic.
Renos are also being challenged by supply chain issues – and a shortage of tradies – which have together resulted in increased building costs.
Property coach Steve Goodey typically has a ‘‘buy, renovate, sell’’ strategy. But not right now.
‘‘In all reality, I’m recommending people don’t do that at the moment,’’ he says. ‘‘In this market that’s dropping markedly it’s wise not to spend too much money.’’
He recommends investors buy cashflow positive places that they do not need to spend money on.
More generally, all home buyers should be looking to buy and hold, he says, and bear in mind the rising costs that interest rate hikes will mean for most people with a mortgage.
‘‘Coming off 2.5% interest and moving closer to 5%, if you bought a house in Auckland, that could easily mean an extra $1000 a month.’’
He gave the example of a homeowner spending $700,000 on a house and adding a $100,000 renovation at this time – when the value of that house could drop below $700,000 within three months.
‘‘It just adds an extra level of risk that I think people won’t be up for, because there won’t be the profit.’’
But Ray White chief operating officer Daniel Coulson takes a more bullish view on renovating, at least for those considering selling their homes soon – because potential buyers will worry about reno costs, too.
Coulson says homeowners would be still well advised to undertake any upgrades that would improve the appeal of their property.
That means getting the house in as good a condition as possible, he says.
‘‘When buyers have choice, they will prefer a done-up home to a do-up.’’
He particularly recommends minor and relatively inexpensive fix-up jobs such as ‘‘new carpet, curtains, and a bit of paint’’.
Doing the work before sale also removes uncertainty for prospective buyers, Coulson says. ‘‘The question for a buyer at the moment is if they’re buying something that needs work, they’re wondering what that’s going to cost them.
‘‘They are hearing that building costs have gone up. If you’re selling the property in a done-up state, that takes away the uncertainty of what the cost might be.’’
A second reno wave
Builderscrack.co.nz spokesman Jeremy Gray says as a general rule, a falling house price market does flow on to renovations. ‘‘When house prices fall, people tend to tighten their belts and not spend [on their homes].
‘‘But because we’ve had such huge gains over the last few years, it’s going to take a big drop to have that effect.’’
He describes the current change in renovation interest levels as a ‘‘general easing of the intensity of demand’’.
Activity on the company’s platform last year reflected the boom.
A record number of jobs were posted, and the average value of the jobs was higher.
He’s now seeing a ‘‘second wave’’ of renovators – homeowners who are not necessarily considering re-sale. And, of course, if your reno project is about making your long-term home better for you, whether it adds to your house price might not be as important to you.
‘‘My impression is the people who were put off last year by frenzied energy around renovations are coming back into the space, asking ‘Can I come out now?’’’ says Gray.
‘‘These are people who have projects they need done in the house they’re living in. They’ve owned the home for a while, built up equity, and they feel comfortable investing in a home and making it more suitable for their lifestyle.’’
People waiting on booked-up tradies – hoping they can finally secure a spot on the calendar for their work – should not be rubbing their hands together just yet.
‘‘It’s still very difficult to find a tradesperson who can get a job done within a few months.’’
Creative to save cash
Serial house trader Stacey Botha has been buying, renovating and selling houses for five years, working on one project at a time.
She is selling her last completed renovation project, a 160-year-old cottage in New Plymouth, and working on the two-bedroom cottage she bought in Washington Valley, Nelson, just as the market was turning.
She is doing almost all the work herself, including moving a wall to create a third bedroom, putting in new appliances and a benchtop in the kitchen, and painting cabinetry, modernising the bathroom, painting and recarpeting throughout.
The changing market means she has had to be ‘‘really creative with this reno’’.
She’s found some great bargains – she found a $9 kitchen sink, and managed to buy plasterboard from a project’s excess supply at only $150 for 12 sheets because it contained fibreglass, making it more difficult to cut, and requiring different priming.
‘‘The market has definitely changed, and the profits aren’t coming as easy,’’ she says.
‘‘I’d say the average flipper who gets contractors to do the work will struggle to make a meaningful income from flipping at the moment.’’