Interest Rates Change Remodeling Calculation

Many homeowners in Philadelphia purchased their home during a time of low interest rates or refinanced at those rates. This has changed the conversations we are having with people considering updates to their homes. Remodeling is a significant investment. Increasing the square footage of your home with an addition, or reconfiguring existing space can cost $300,000 and up. Additionally, as the yearly Cost vs. Value report shows, the return on investment is never 100%, often it is much less. When interest rates were low, this meant it might be cost effective to buy a different house instead of remodeling. Especially when it came to additions in Philadelphia, I advised potential clients to look for a bigger house rather than going through the time and expense of adding on.

Over the last couple years though, I have seen the math change. I still recommend homeowners review what homes are available that might suit their needs before committing to a remodel, but more and more people are telling me that they have looked and decided remodeling is the best way for them to get the house they want. Home prices in the Philadelphia region have not come down enough to compensate for the higher rates, so homeowners, especially those with equity in addition to a low rate, would need to settle for less house if they moved. The majority of the clients currently working with our designers on upcoming projects, as well as all of our current projects in construction, have lived in their homes for over five years, some for 10 or 20. If you go back to 2021, many of our clients were remodeling a home they had just purchased. Even if you do not have the savings to pay for the cost of the remodel and are financing it at today's interest rates, that loan is only a fraction of your total investment, unlike a new purchase.

The images in this post are from two of our projects in design. Using 3D renderings, our designers are able to show clients what their new space will be like. There is no substitute for working with a designer to create a home that is uniquely you, but in today's financial environment this big investment looks better when compared with moving. These days Love It is beating List It.