It’s been quite a while since homeowners have felt it’s worthwhile to put good money into their houses. Given years of declining home values, there has been little hope of getting one’s money back with major remodeling projects. A new report indicates that in the months ahead, however, owners will be picking up their hammers — or at least hiring plenty of contractors and handymen — in what’s expected to be a major growth period for remodeling.
The latest study from Harvard’s Joint Center for Housing Studies forecasts that double-digit growth in annual homeowner spending on remodeling by the first quarter of 2013:
“Home-improvement activity has been bouncing around the bottom of this cycle for almost three years now, waiting for the industry to get some traction,” says Kermit Baker, director of the Remodeling Futures Program at the Joint Center. “Now, the combination of low financing costs, stronger consumer confidence, improving home sales and the perception that home prices have stabilized in most markets across the country are encouraging owners to start working on the list of home-improvement projects they have been putting off.”
The rise in remodeling would seem to parallel the recent increases in auto sales. Dealerships have benefitted from strong sales in March, February and much of the year, and at least part of the reason more cars are being purchased is that relatively few cars were purchased in prior years. Early in 2012, it was reported that the average car on the road was over 11 years old, the highest figure ever. All of that delayed demand finally caught up with drivers this year, resulting in strong car sales. Similarly, homeowners appear to be deciding that it’s finally time to take on long-delayed remodeling projects. Helping the cause: by some account, it appears as if the housing market has finally hit bottom, and values are set to rise.
It’s perfectly understandable why owners have been putting off home-improvement projects. Back in 2005, dropping serious money on renovations seemed like a no-brainer. Home-improvement projects yielded 87¢ of value for every $1 in cost, on average, and it wasn’t that difficult for smart DIYers and remodelers to choose projects that boosted home values more than what they spent out of pocket. My, how times have changed.
Seven years after hitting a peak in the cost-vs.-value ratio for home-improvement projects, Remodeling magazine estimated a little while back that homeowners could now expect to get a mere 58¢ or so of value for every $1 spent remodeling. The cost-vs.-value ratio has been dropping steadily since 2005, when it measured 87%, down to 61.5% last year and 57.7% lately.
The main reason for the decrease in the ratio is one that homeowners and contractors alike are powerless to counter: the overall drop in housing prices. Improvements and upgrades can only do so much when the overarching trend is home values that shrink. This is so even as the cost of remodeling is likely to have decreased because of contractors being eager for work in recent years.
Owners who are struggling to sell their homes may be especially tempted to take on remodeling projects that they assume will give them an edge on unloading the property. But, as a Philadelphia Daily News story based largely on Remodeling magazine’s survey states, it’s unlikely that last-minute renovations make financial sense when preparing for a sale:
Doing the necessary improvements to a house will help it compete. If two houses are for sale on the same street for the same price and one has a new roof while the other needs one, it’s not hard to figure out which might sell first. But might is the operative word in an era when little about the real estate market is a certainty.
Instead of showy, high-end improvements ranging from restaurant-quality kitchen appliances to in-home theaters, homeowners have been more likely to care deeply about price and value when remodeling in recent years. That’s if they’ve done any remodeling at all, of course.