Home remodeling market sees some bounce back in Colorado

Stuck day and night in homes that feel too cramped or outdated, and with the options to escape to something better increasingly limited, a growing number of homeowners across metro Denver and the state are spending large amounts to renovate and remodel.

“When COVID hit, our home became our offices overnight, it became a school. We moved our father-in-law in because we didn’t feel safe with him living where he was,” said Gina Earles, executive director of Blue Sky Bridge, a nonprofit that oversees child advocacy programs in Boulder County.

With five people crowded full-time into the confines of the family’s north Boulder home, every bit of space became important in a way it wasn’t before, she said. Defects that the family once tolerated became grating.

The work started early in the pandemic, with basement repairs on damage from the 2013 floods making way to add an apartment for her husband Tracy’s father, who is 90. The work quickly moved upstairs over the summer into updates of the furniture, carpet, paint and window coverings, followed by a master bathroom remodel still underway in 2021.

“We always thought our bathroom was dated. It wasn’t a nice space. We hated the tile, the jacuzzi tub. We thought while we are at it, why don’t we do this too,” Earles said.

In April, the Leading Indicator of Remodeling Activity, put out by Harvard University, predicted remodeling contractors would see revenues shrink in 2020 and into 2021 because of the pandemic. But by October, the index showed unexpected strength and predicted remodeling activity be up 4.1% in the first quarter of 2021.

“The remodeling market is bouncing back from the initial shocks caused by the pandemic, as homeowners continue to spend significant time in their home and are adapting it for work, school and leisure,” said Chris Herbert, managing director of the Joint Center for Housing Studies at Harvard in the report.

Much of the initial surge was in do-it-yourself projects, as anyone who visited a Home Depot or Lowes last summer or fall can attest to. Local designers and contractors report a big increase in larger and more complex projects, and increases far beyond what the Harvard report is predicting.

Judy Goldman, CEO of Design Studio Interior Solutions in Boulder, helped the Earles family with their renovations and said her firm’s business was up 80% last year. This year is starting out strong as more people seek guidance in a process that the pandemic has stretched out and made more complicated.

“With people being in their home so much, their home means something different to them today,” Goldman said.

Early on, some people quickly realized they needed to make their homes function better for remote work and schooling. Others reached the breaking point after staring at worn flooring, dreary drapes and dated paint schemes. Money that might have gone to family vacations went to repairs, while others borrowed against home equity to fund interior refreshes, improvements to outdoor spaces and kitchen and bathroom remodels.

“We have done 20 to 30 bathrooms,” Goldman said. “COVID-19 feels dirty to people. Nice bathrooms make them feel clean.”

Bigger projects, including complete makeovers and additions, have also grown in popularity. Toby Hertel, owner of AAA Home Improvements in Lakewood, specializes in $100,000-plus projects. He estimates his sales were up 30% last year from 2019, even after taking a six-week pause from pursuing new business during the spring lockdown.

“We are up more than that carrying into that into this year. We are in good shape,’ he said.

Pat Minniear, CEO of Boulder-based Milo Construction, said his firm has experienced a 50% jump in revenues over 2019, across a variety of home improvement and remodeling projects.

“A majority of the work is people in existing homes not wanting to move on. In 2020 everybody was stuck at home staring at the wall they hated and wanting to make changes,” he said.

Low rates and plentiful equity

In the early 2000s when Tom Yoswa, a loan officer at Caliber Home Loans in Greenwood Village, started specializing in home renovation loans, the average amount borrowed was around $35,000. Now the average is closer to $125,000, reflecting both the added cost of revamping a home in today’s market, but also the equity accumulated after a decade of home price gains.

Since 2010, the median home price in metro Denver is up 82%, according to an affordability analysis by Point2Homes.com. And while incomes didn’t keep pace, they rose enough when combined with much lower interest rates to keep the mortgage burden at manageable levels.

Those low rates have also fueled a buying boom that has left the inventory of homes for sale in metro Denver below 3,000 for the first time, a fraction of historic levels. Even if someone wanted to buy a bigger and better home, finding one won’t be easy. And that is turn is limiting new listings, creating a vicious cycle of constrained inventory.

Yoswa specializes in what are known as Fannie Mae Homestyle Loans, which base the loan amount on what a home will be worth after renovations rather than on its current value. Loans can go up to conforming loan limits, which in metro Denver are just under $600,000.

While interest rates are slightly higher than on a conventional loan, someone with good credit can still get one for under 3%, he said. And they are especially popular with borrowers who have been in their homes for five years or less.

Yoswa points to the example of a family that owed $280,000 on a home worth $450,000, but that wanted to pop the top off on a remodel expected to cost $250,000. That expense was more than the equity in the property, but the Homestyle loan would make it possible.

Owners who have been in their homes a long time and have built up a thick equity cushion are also turning to home equity lines of credit or cash-out refinancings.

Borrowers taking out a Homestyle loan have a month to start the work after closing on a loan and a year to complete it, so it is important they have a good grip on the scope and cost of the work, and a reliable design and construction team lined up in advance, Yoswa said.

Dust and delays

Before the pandemic, someone undertaking a major remodel might move in with relatives for a few weeks or rent an extended-stay residence. Today, it’s more likely that someone needing major work done will have to put up with noise and dusty and masked tradesmen coming in and out of their homes while the kids are watching classes and they are on a Zoom call with the boss.

“We didn’t have the luxury to move out and go stay somewhere else during this work because of COVID. We are not leaving during the day,” Earles said, as workers hammered away in the background. But the contractor, Flatirons Construction, have been conscientious and respectful about the family’s concerns, she said.

Goldman said having to stay in a home full-time while crews are doing their work can be a receipt for failure unless there is good communication between a customer and the construction team. Among the tasks her firm handles for clients is ordering and securing the components needed and storing them in a warehouse so they are ready to go when contractors need them. That has proven essential given all the supply chain disruptions the pandemic has caused.

“There are shortages of standard materials that we were accustomed to having. It was kind of like the toilet paper, you think it will always be there, and then it’s not. And it’s difficult to work around,” said Hertel.

Hertel said a sheet of OSB plywood that went for $10 a sheet in the past shot up to $30 at one point. He has a project held up for weeks by a lack of LED can lights. And good luck trying to find siding. Many types that were always available before 2020 won’t be in stock until March, he said.

Work crews can’t be scheduled on top of each other and must be staggered out, and contractors are falling ill or having to quarantine, which adds to costs and can delay completion. Minniear estimates labor costs are up 15% to 20% since the pandemic.

“We suggest that people move out or move to another part of the house. It is a big complication these days and we discuss it early in the process. How are we going to work through this remodel?” he said.