As housing market continues to sag, remodeling gains steam
Many homeowners have decided to stay put and make improvements, while others are making upgrades in hopes of selling.
With the real-estate market continuing to flounder, many homeowners are now sprucing up rather than trading up, according to a report released last month.
The Residential BuildFax Remodeling Index, based on building permits, rose 22% in January 2011 over the previous year.
Moreover, an annual year-over-year spending spike of 6.5% is expected in the third quarter of this year, according to a forecast by the Remodeling Futures Program at the Joint Center for Housing Studies at Harvard University, as buyers start fixing up the things they've been putting off.
"Favorable interest rates, a pickup in home sales and the strengthening economy should lead to healthy gains in remodeling spending this year," says Eric Belsky, managing director of the center.
Couple that with minor makeovers by homeowners who can't yet sell but can't deal with their current surroundings, and beleaguered contractors are finally beginning to see the light at the end of a very long tunnel.
However, no one is cheering yet. A glut of labor due to a wave of builders being forced back into remodeling work has driven bids down in many areas, squeezing profits. And Belsky says there are some concerns that the remodeling recovery may lose a bit of steam late in the year if home prices don't stabilize.
But for those who have cash — or access to financing — there's never been a better time to give your home a face lift, analysts say.
What are people doing?
Forget the plush Versailles-type kitchens and bathroom palaces that homeowners were putting in when home prices were escalating year after year.
The jobs that most contractors have seen in the last year are smaller and are more about maintenance and function than fashion. Think window replacement and roofing, rather than large outdoor kitchens.
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"They are doing essential things," says Don Van Cura, a remodeling contractor in Chicago. If they do larger projects, he says, they are spending more time on the plan and the budget. "Less walls are coming out. More people are working with the space that they have."
Most of the top-ranked remodeling jobs in Remodeling magazine's Cost vs. Value report 2010-11 were small exterior jobs such as entry-door and garage-door replacement, new windows, siding and outdoor decks.
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Why? Those were the jobs that paid the biggest dividends. Indeed, nine of the 10 most cost-effective projects nationally in terms of value recouped were exterior replacement projects.
"Curb appeal remains king. It's the first thing potential buyers notice when looking for a home, and it also demonstrates pride of ownership," says Ron Phipps, broker at Phipps Realty in Warwick, R.I., and president of the National Association of Realtors.
But with more homeowners forced to stay longer in their homes, livability is proving important, too.
Jobs that add living space without expanding square footage are in demand, such as basement remodels — which recoup 70% of the average $64,519 cost, according to Cost vs. Value — and attic bedroom additions, which recover 72% of the $51,428 tab. These types of jobs were especially common in those markets where values suffered the most, and presumably have the longest climb back.
Other jobs that recouped a large share of their value on the Remodeling magazine list:
- Fiber-cement siding replacement recouped 80% of its $13,382 cost.
- Entry-door replacement (steel) recovered 102% of its cost.
- Garage-door replacement recouped 84% of its $1,291 cost.
- Vinyl-window replacement recovered 73% of its average $14,284 cost.
Still, the dollar value that homeowners can glean from improvements edged down overall to an average of 60% from 63.8% last year on lower home values, even with a 10.4% decline in construction costs.