Jory Segal has been dreaming of remodeling her 2,700-square-foot San Jose home for years. The 68-year-old longed to brighten her living space and gussy up her kitchen and bathrooms with trendy upgrades, but it took time to decide on the perfect design. Just last week, after a six-month project, she finally completed her renovation.
“I’m not embarrassed to have people come over anymore,” says Segal with a big sigh. She opened up the kitchen and dining room, updated her windows and appliances and picked out a chic “leathered” black granite with dazzling swirls of brown and rust for her kitchen countertops. “After 25 years, everything gets dated. Now, I love it. It’s gorgeous and amazing. I got just what I wanted.”
She’s got lots of company. The San Jose and San Francisco metro areas were tops in the nation last year for the amount spent on renovations, with San Jose and San Francisco spending a median of $25,000, according to a survey of 140,000 Houzz users released this month by the home remodel website. In its report, Palo Alto-based Houzz includes the full range of home renovations, from small DIY-projects to full house remodels, as long as they don’t add any square footage.
Last year’s median in San Jose and San Francisco is slightly less than the $30,000 median spent in San Jose in 2017, but it’s still higher than the national median of $15,000. The two metro areas have come in first and second in the nation since 2015, the first year Houzz tracked the data.
At the higher end of the spectrum, the top 10 percent of spenders nationally forked over a median of $80,000 in 2018, according to the Houzz report. The National Association of the Remodeling Industry estimates the median cost of remodeling at $25,000 for a bathroom to $200,000 for a whole house renovation, according to a 2018 survey that includes additions to houses.
“Pent up demand continues to be the biggest trigger for renovations today,” says Nino Sitchinava, Houzz principal economist. “Homeowners in the Bay Area wait a long time to find the right house. When they finally have it, they want to make it their dream home. They want a certain quality of life. Silicon Valley is the engine of the U.S. economy. That’s why the spend here is significantly higher than in the rest of the country.”
Another factor pushing up the price of renovations is the rising cost of construction. The Bay Area is now the most expensive place in the world to build, according to a recent report from UK-based consultant Turner Townsend.
Despite flattening home sales, business is booming for Bay Area remodelers. Some contractors take days to return calls, clients say, while others have long waiting lists.
“It’s crazy busy. I’ve got more clients than I can handle,” says Rob Gamble, owner of RR Development in San Jose, who remodeled Segal’s house. He has a year-long waiting list right now. “And I was slammed last year too.”
“It’s hard,” says Vivian Costa, a designer at Kitchen Remodeling Authority in Tracy, which also has a waiting list, “but I try to get people in as soon as I can.”
Many homeowners are making long-awaited nips and tucks to older houses that are showing their age, experts say. That has helped push the remodeling market to $424 billion in 2017, a 6.5 percent increase from 2016, according to the most recent report from Harvard’s Joint Center for Housing Studies. Nationally, 13.5 percent of houses were built before 1940, but it’s 48 percent in San Francisco and 42 percent in San Jose, the Houzz survey reports.
“The Bay Area has a lot of older homes and many homeowners planning to do the renovations and stay put,” notes Sitchinava. “That is especially true of Baby Boomers who are planning to age in place.”
Segal is a case in point. She and her husband are fond of their house and their Almaden neighborhood and have no intention of leaving. If need be, she says, someday they will install an elevator. She declined to say how much her remodeling project cost.
“The Bay Area is our home, our children live here,” says Segal, who has taken a walk along the Alameda Creek trail almost every day for years. “We plan to spend another 20 years here.”
Gamble says his high-end client base doesn’t blink at what’s involved in a home renovation project.
“Everything is super expensive right now. You have to have real money to do this kind of remodel,” says the San Jose contractor who estimates his projects range from $30,000 to $1 million. “Right now my clients want the fancy stuff, the high-end materials and the upscale features.”
Many are chasing the latest trends in home design, says Costa, such as smart tech features like thermostats, lighting and digital security systems, and gourmet kitchens. Spending on the kitchen, the heart of the house, has jumped 27 percent in the past year to a median of $14,000 nationally, according to the Houzz survey.
“New trends are definitely the driver,” says Costa, adding that many homeowners want to recreate the designer looks they have seen in home remodel television shows and on Pinterest pages.
Richa Tagra, who worked with Costa on a $25,000 remodel of the kitchen and staircase in her 2,200-square-foot San Ramon home, says it was important to get the best materials possible.
“I need that with the rigor I put my kitchen through,” says Tagra, 43, who ditched her old cabinets for custom maple wood cabinets and traded her unfinished concrete counters for a shiny quartz countertop.
Cost can be a sticking point these days, but Costa says she tries her best to stay within a client’s budget even though a shortage of construction workers has put pressure on the cost of remodeling.
“There is a labor shortage, and that shortage is a key reason it is hard for contractors to meet demand,” says Paul Emrath, vice president of surveys and housing policy research for the National Association of Home Builders. “Compared to a year earlier, the share of our remodelers reporting labor shortages was down very slightly, but it was down from a very high level, and well over 80 percent are still reporting shortages.”
This pressure, coupled with a cooling housing market and a spike in the cost of imported materials, could cause a dip in the demand for remodeling in the next few years, experts say. On the heels of a long, steady rise in remodeling, many are projecting that the rate of growth will likely slow. The national backlog for contractors already has shrunk, from 12 weeks last year to 5 weeks this year, says the Houzz report.
“We are getting to the point where we may be reaching a peak in home renovation activity,” says Sitchinava. “We don’t anticipate a decline, but as home prices plateau, we expect to see a softening of growth and a return to a more sustainable level of activity.”