The State of Remodeling in 2023
The home improvement industry is booming. With Americans spending more time at home than ever, the total amount spent on renovations and upgrades soared by nearly 27% between 2020 and 2022. But which home improvements provided the biggest return on investment? Today’s Homeowner analyzed 34 of the most popular home remodeling projects to find out.
According to data from the Joint Center for Housing Studies of Harvard University (JCHS), homeowners spent $337 billion in home improvements and repairs in 2020, $368 billion in 2021, and an estimated $427 billion in 2022. In 2023, spending on home improvements is expected to grow at a slightly slower rate. Mortgage rates are relatively high, enticing homeowners to renovate their current home rather than search for a new one. However, the rising materials and labor costs and the uncertain economic climate may deter some homeowners from taking on new projects.
With this uncertainty, Americans need answers on home improvement projects: the costs, the value they can create, and the return on investment (ROI) - which we define as the estimated value the project adds to the home divided by the project cost. In this report, we determined the average ROI for 34 home remodeling projects across nearly 1,300 U.S. cities. Check out our findings below.
On average, remodeling projects have a 69% ROI, with a garage door replacement ranking best (100.0%) and a finished basement ranking worst (22.7%).
The average cost recovered for exterior projects is 23% higher than interior ones.
In the kitchen, appliances and counters may help home values the most.
Half of the luxury upgrade projects we considered have an ROI of 50% or lower.
Remodeling projects that add square footage show diminishing returns.
Western states have the highest average cost recovered across all 34 projects.
Recovering Costs on Your Home Remodel
Nationally, the average ROI for home remodeling projects is 69%. In other words, homeowners will recoup only 69% of the money they put into home improvements. This number varies starkly according to project type, however.
The home remodeling project with the highest ROI is unexpected. Though not a particularly flashy or expensive project, a garage door replacement comes in first with an ROI of 100.0%. This means that the average cost of a garage door replacement is equal to the average expected value added to a home.
In total, 10 home improvement projects have a cost recovered of 80% or higher. The chart below shows all 10 projects, ranked according to the average ROI nationally, though figures for each project may vary by state and city.
On the other side, 12 home improvement projects have an estimated ROI of 60% or lower. The lowest ROI project is a finished basement, at 22.7%. This especially low ROI (low relative to even other projects at the bottom of our list) seems to indicate that homebuyers tend to place more value on above-ground living space.
Three luxury additions also rank in the 12 projects with the lowest ROI. They are an upscale bathroom remodel (48.8%), an upscale primary suite addition (50.0%), and an upscale major kitchen remodel (53.0%). An upscale primary suite addition is the most expensive remodel in our study (about $148,000), but we found that the average expected value added is only half of that figure (about $74,000). The chart below shows differences in average cost and expected value added for all 34 projects.
Exterior vs. Interior Projects
Home sellers may be best off investing in the exterior of their home compared to the interior. Realtor Suzanne Coddington of Dickens Mitchener
notes, “Curb appeal really matters when selling your home. It’s difficult to get buyers to see a home that has little or no curb appeal.”
This proves true when measuring the cost recovered of various home improvement projects. The average ROI across exterior projects is about 80% compared to roughly 57% for interior ones. In fact, all seven remodeling projects with an ROI exceeding 90% relate to the home’s exterior. They include:
Garage door replacement
Wood and vinyl window replacements
Screened-in porch addition
Fiber-cement and vinyl siding replacements
Of the projects above, an inground pool is perhaps the most uncertain when it comes to estimating the value added to a home. While some homebuyers may prioritize having a pool, others may see it as a downside given the regularly required maintenance and recurring costs.
Over the past couple of years, there has been renewed interest among buyers for homes with pools. Real estate agent Lois Magee
“Prior to the COVID-19 pandemic, it was regularly a challenge to sell a home with a pool. Prospective buyers recognized that it was very expensive to keep and maintain a pool and some would even inquire about filling in pools, if they liked the rest of the home. However, with social distancing and business closures, pools were a hot commodity and properties with pools became much more attractive than in years past."
Of the seven types of kitchen remodels we considered, smaller kitchen projects tend to have a higher ROI than larger ones. In particular, updating kitchen appliances or countertops has the largest impact on home value, while full kitchen updates generally have a lower average ROI.
One exception to this trend is installing laminate kitchen countertops. Considered a smaller kitchen renovation project, new laminate kitchen countertops have a lower investment return than quartz or granite ones, with a difference of more than 12 percentage points in expected ROI.
We analyzed data for four luxury home improvement projects that span the three primary rooms in a home: the kitchen, bathroom, and primary suite. While all four projects have an average ROI below the national average of 69%, the worst-ranking project is an upscale bathroom remodel. The average cost is roughly $29,200, and the average expected value added clocks in at just under $14,300. This means that homeowners will recoup less than half their upfront investment.
One potential reason luxury upgrades see a lower ROI is that appraisals rely on comparisons between similar properties. A high-end remodel in one room (which may be inconsistent with the overall level of luxury in the home) is often not supported by the market, depending on the property comparisons available. Magee states:
“I advise my clients to make changes and updates that they will enjoy and to not overimprove unless they intend to stay a long time and understand up front that they may not recoup their renovation costs. For example, in a midrange home, I would not expect to find custom inset cabinets or a Wolf Range/Sub Zero refrigerator, but I would expect to see these (or similar level) products in a higher-end property.”
Square Footage Additions
We examined four projects that add square footage to the house, all of which rank in the bottom half of the study according to cost recovered. They include:
A midrange primary suite addition
An upscale primary suite addition
A midrange bathroom addition
An upscale bathroom addition
Of the four, both levels of primary suite additions have an average ROI of 50% or lower, while also incurring significant upfront costs. Specifically, a midrange primary suite addition costs roughly $86,800 while we estimate an upscale one is more than $148,000 on average. These low ROIs show that value returns are marginal. Magee discusses:
“The foundation of the home is one of the more expensive components of a property to build, and it is less expensive to build up than out. While there are no hard and fast rules when it comes to home values and appraisals, additional square footage on a second or third floor may actually reduce the price per square foot of the home. For instance, for a 2,000-square-foot-home and 3,000-square-foot-home in the same neighborhood, you would expect the smaller home to have a higher price per square foot if other components (# baths, beds, etc.) are similar.”
Seven of the top 10 states with the highest average ROI are in the West, a region home to some of the hottest housing markets in the country. Those states include Hawaii, California, Colorado, Montana, Washington, Nevada, and Oregon. In Hawaii — the top-ranking state overall — 11 of the 34 remodeling projects we considered have an ROI exceeding 100%, with many relating to outdoor space additions or upgrades.
The remaining places in our top 10 are the District of Columbia, Vermont, and New Jersey. The average ROI across all remodeling projects is 87.0% in the District of Columbia, 77.2% in Vermont, and 73.6% in New Jersey. In the District of Columbia and New Jersey, average costs across remodeling projects are only about 5% and 2% higher than the national average, respectively, while expected value added is roughly 28% and 8% higher. Meanwhile, in Vermont, remodeling costs tend to be lower though expected value added still exceeds the national average.