Escalating home repair expenses exacerbating already strained home affordability issues
In recent years, the rising cost of repairs and remodeling has significantly impacted the affordability of fixer-uppers for first-time homebuyers. Although these properties are often seen as a cheaper entry point into homeownership, escalating repair and renovation expenses have eroded these potential savings.
According to the Verisk Q1 2025 Repair & Remodel Index, repair and remodeling costs have increased by around 4% in the past year and soared by 61% over the past decade. This steep rise is partly due to supply-chain disruptions during the COVID-19 pandemic and the subsequent inflation spike in 2022, which reached a 40-year high of 9%.
Most of the recent price increases in repair and remodeling costs appear to be due to higher labor costs, which now account for almost 60% of the cost of these projects. For instance, the average cost for paint and carpet work for a typical 1970s-era 2-bedroom/2-bathroom, 2,000-square-foot Southern California home has jumped from $28,000 to $38,000, primarily due to labor shortages exacerbated by immigration policies.
The increase in costs and fewer rehabbed properties being brought to market may pose a challenge for first-time buyers looking for affordable homes. In 2022, total spending for repairs, updates, and ongoing maintenance reached a record $611 billion. Consequently, first-time buyers who might choose fixer-uppers for affordability face higher-than-expected expenses in making the homes livable or updated.
The Federal Reserve Bank of Atlanta estimates that homebuyers needed a median income of over $126,000 to afford a median-priced home in June 2023, while the actual median income in the U.S. was a bit over $79,000. This dynamic narrows the price gap between move-in-ready homes and fixer-uppers, pushing the effective cost of ownership beyond many buyers’ budgets.
Homeowners aged 65 and older virtually doubled their aggregate share of home-improvement spending from 2003 to 2023. This trend, coupled with America's aging housing stock (with the median age of an owner-occupied U.S. home in 2023 being 42 years old), means that the need for repairs and remodeling is likely to continue.
Tony Diaz, founder and CEO of Flip IQ, suggests that the reality of price increases is more nuanced and complicated, with some product prices increasing before tariffs were announced. Despite this, homebuyers should factor in the increased costs of materials and labor when considering a fixer-upper or a rehabbed foreclosure home.
Some investors, like Tony Diaz, have even paused their investments due to these increased costs, coupled with a slowdown in home sales. Greg Pyne, VP of Verisk, notes that they will be watching closely the impact of tariffs and stricter immigration policies on construction labor force and material costs in the months ahead.
In sum, escalating repair and remodeling costs have made fixer-uppers less financially viable as affordable options compared to prior years, especially affecting first-time buyers looking to save by purchasing homes needing work. Homebuyers should carefully consider these costs when making decisions about their home purchases.
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