Remodeling activity remained steady in the fourth fiscal quarter of 2006, according to the National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI).
What this means locally is that home improvement loan activity is not sagging off nearly as much as traditional home purchase loan demand.
The current market conditions index edged up slightly from 47.8 to 48.2 on a seasonally adjusted basis and future expectations moved up to 46.0 from 45.4. The RMI measures remodeler perceptions of market demand for current and future residential home remodeling projects.
“Remodeling retained strength across most of the country compared to late last year,” said NAHB Remodelers Chairman Mike Nagel.
“Certainly the regional economy and housing market play an important role, but overall we see maintenance of high levels of remodeling activity and solid future prospects.”
The RMI component for the rental market indicated a stronger than expected increase in activity for that sector in the fourth quarter of 2006.
Current conditions index for renter-occupied markets increased from 38.8 to 44.1, while conditions in owner-occupied units decreased from 51.4 to 49.7.
At a time when mortgage rates remain steady but home sales remain slower than recent years, future expectations for the renter-occupied units also grew from 37.1 to 42.4, while owner-occupied units edged up from 45.0 to 45.6.
“Though the substantial reductions in home sales and new housing production have impacted the remodeling market to some degree, we feel that remodeling of both owner-occupied and rental housing will remain strong compared to other areas of the industry,” said NAHB Chief Economist Dave Seiders.
“With record levels of owners’ home equity and a constant need to upgrade the older housing inventory, the remodeling outlook appears quite good for years to come.”
Regionally, the Southeast reported the most growth as current conditions increased to 52.8 and future expectations moved up to 51.1. While the slumping of the housing market has been widely reported, this indicates record amounts of home equity waiting to be tapped.
The current conditions in the West grew to 52.4, but future expectations fell to 51.3. In the Northeast, current conditions moved down to 45.7 while future expectations increased to 50.1. Only the Midwest showed declines in both, with current conditions decreasing to 44.4 and future expectations lowering to 35.7.
The RMI is based on a quarterly survey of home remodeling professionals, whose answers to a series of questions were assigned numerical values to calculate two separate indexes.
The first index gauges market conditions based on remodelers’ reports of major and minor additions and alterations on both owner- and renter-occupied dwellings.
The second index gauges expectations for the future and is based on remodelers’ reports of their calls for bids, the amount of work committed for the next three months, job backlogs and appointments for proposals. This can be considered an accurate gauge of future demand for home equity loans.
SOURCE: National Association of Home Builders
Lillian Margolis of Andover, Mass., didn’t always have the perfect home.
In fact, there were eight inches of water in the basement after she bought it in 1981 for $129,000. She’s undergone three major home remodeling projects, expanding the living space by 600 square feet.
And while Margolis has no intentions of selling the home, she believes she could recoup her approximate $430,000 in home improvement costs - made possible via various home equity loans - at resale.
“I love how this house is married to the land,” Margolis, 73, told the Lawrence (Mass.) Eagle-Tribune. “Before, I was isolated. I couldn’t see anybody. Now, I can see everything. It took a lot of time to make this house the way it is. It was certainly a labor of love.”
Traditionally, home improvement projects have been a great way to increase your home’s resale value. This is no secret, as homeowners spent roughly $168 billion on home improvements and repairs in 2006, according to the Joint Center for Housing Studies at Harvard University.
Homeowners hoping to take advantage and cash in on a sizzling Massachusetts housing market focused on high-end projects, like new master suites, during the last five years.
But now that Massachusetts mortgage costs have soared and demand cooled, homeowners are more focused on modest home improvement projects that won’t price out potential buyers, said Kermit Baker, director of the Remodeling Futures Program at the Harvard center.
The truth is, you’re unlikely to recoup a remodeling project’s entire cost in today’s market. Price tags rose for most projects in 2006 while their resale value dropped back down to 2002 levels, according to Remodeling Magazine’s 19th annual Cost vs. Value Report.
But keep in mind that resale value isn’t always measured monetarily. You might spend $65,000 on an addition and increase the home’s value by just $50,000. But if it takes you three fewer months to sell the house, that time saved is also worth something.
When you plan to sell should factor into your project selection process. If you want to move homes this spring, simple improvements to the home’s electrical system or storage areas would attract buyers without making the house cost more than they can afford.
Keeping the house updated through small cosmetic improvements can result in getting $20,000 more at closing time, said Andover real estate agent Susan Papalia.
Also, it’s important to note that improvements that make your home more marketable can be as simple as cleaning up and decluttering.
“Your closets shouldn’t be overrun with stuff inside. If they looks neat and organized, buyers think, ‘There’s plenty of room in here,’” said professional organizer Jessica O’Leary of Derry, N.H. “It’s amazing how keeping things picked up really goes a long way.”
If you’d like to sell in a few years when the market is likely to regain at least some of its strength, think about using your home improvement loan for a larger project, like remodeling a bathroom.
A project designed for mass appeal will add value to your house in the long run, but more importantly, it will increase the quality of your daily life until then, Baker said.
“Home is a priority for me,” stated Andover resident Cathy Lloyd. “I love being home and love entertaining others in my home. Plus, I do believe that whenever we sell, depending on market conditions, mortgage rates, etc., we will get back some if not all of our investment.”
Follow the link to continue reading this Lawrence Eagle-Tribune article.
Permits for residential remodeling hit a three-year high in 2006, according to BuildEx, according to the Community Press, which cites the Home Builders Association of Northern Kentucky’s permit tracking service.
A surge in home improvement loan activity helped spark a total of 1,197 permits for home remodeling projects were issued last year in the region, for a dollar volume of $37.6 million.
In 2006, Boone County issued 444 permits, followed by Kenton County with 415 permits, Campbell County with a total of 265 permits and Grant County with 73 permits.
A total of 1,095 permits were issued in the Northern Kentucky housing market throughout 2005, while 947 permits were issued in 2004.
Last year’s dollar volume of $37.6 million was 43.5 percent higher than the dollar volume of $26.2 million registered in 2005, when Kentucky mortgage demand was at its peak, along with most of the U.S. The total came in 56 percent higher than 2004’s dollar volume of $24.1 million.
Boone County’s 444 remodeling permits last year were off slightly from the 451 issued in 2005. The 415 housing permits issued in Kenton County last year were up dramatically from the 320 issued in 2005. Campbell County’s 264 permits issued in 2005, were only one less than the 265 issued in 2006.
The association attributes the increase in remodeling to a combination of factors, including a growing percent of homeowners who prefer to make changes in their existing space to accommodate a changing lifestyle.
In addition, experts believe a number of homeowners have opted to remodel rather than move, due to the slowdown in existing home sales.
An updated remodeling survey of 5,000 homeowners was conducted in the fall of 2006, showing a continuing trend toward large remodels, with an increasing concern for the cost of the remodel/home improvement loan.
All participants in the survey were considering remodeling their existing home or moving to a different one. Participants had lived in their current home (an average home value of $422,000) for an average of 8.5 years.
Survey respondents stated that they expect to stay in their home for 17 years after their remodel is complete.
Some of the findings in the survey:
- Do-It-Yourself is on the rise for remodelers;
- 32% said they plan to be their own remodeling contractors (up from 2005’s 25%).
- 65% will do at least a portion of the remodeling work (up from 60% last year).
- 50% who plan to remodel will spend 30% of their home’s current value on the project, be it via a home improvement loan or a home equity loan;
- 50% of the respondents want more rooms, such as dens and bedrooms. 57% are planning to add one or more bathrooms.
- 15% described their choice of materials for their remodel as expensive, 10% as economy and 75% want materials, cabinets and trim to be average for the type of home they live in.
- 55% of those considering remodeling are excited about the idea; 10% are dreading the process, largely due to home equity loan rates;
Dan Fritschen, the author of the study, says the trend towards remodeling is deepening with an increasing cost consciousness.
“With housing prices falling and [mortgage interest rates] higher than they were a few years ago homeowners are still remodeling, but with an emphasis on managing costs.”
“Just a year ago with high home prices many homeowners were influenced by the wealth effect and were remodeling with a blank check attitude. What the survey shows is that homeowners are planning to spend about the same amount but are expecting to get more for their money and not hiring a general contractor and doing some of the work themselves is one way homeowners think they can reduce the cost.”
Across the nation, sellers are looking for an edge. As properties remain on the market longer, many current owners wish to take out a home improvement loan in order to fix up aspects of their houses and attract buyers.
But is this a cost-effective strategy?
Not these days, reports the National Association of Realtors (NAR) and Remodeling Magazine. Renovation costs are shooting higher and higher, while homeowners are getting a lot less bang for their remodeling bucks.
Last year, for example, adding a master bedroom suite to a house cost an average of $75,959 nationwide and boosted the home’s resale value by $64,419 - that’s 84.8 percent of the cost recouped. The same job this year cost a lot more - $94,331 - and returned just $68,458, or 72.6 percent.
The Harvard University Joint Center for Housing Studies estimates that Americans will spend nearly $160 billion for home remodeling projects over the next 12 months.
Many costs associated with remodeling have spiked. Last year, the national average for a midrange kitchen renovation was $43,862, according to NAR. But this year, that average cost had leaped to $54,241. Hard to make up that difference when NAR reported that home prices have actually fallen in the past 12 months.
A year ago, many remodeling jobs returned 80 percent of their cost or more when the owner sold the house. Some of the most profitable renovations, such as an upscale residing, actually paid off more - 103.6 percent - than they cost. This made the choice to apply for home improvement loans an easy one.
Location matters
There are lots of regional differences in the benefits of remodeling jobs. A midrange bathroom renovation pays off a lot more on the Pacific Coast (103.2 percent) than it does in the Plains states (74.8 percent) or the Great Lakes state (71.8 percent).
Part of the difference stems from the generally depressed home resale prices in the Midwest compared with the elevated home prices on the Pacific Coast.
In the Middle Atlantic states a vinyl siding replacement returns 92.3 percent of its cost, well above the national average of 87.2 percent, while in the Southwest the same job returns just 80.9 percent of the cost.
Generally, projects done in the Pacific states and the Atlantic South return a greater percentage of their costs than the other regions of the country.
Overall though, NAR president, Pat Vredevoogd Combs cautions homeowners to take the data with a grain of salt.
“Many factors affect a home’s value,” she said, “and, consequently, the resale value of any given remodeling project.
Considering a remodeling project to boost the value of your property? Weighing various home improvement loan options?
Good, you should be.
Here’s a new one to consider:
Before you drop $40,000 or more on a new kitchen or master bath, familiarize yourself the newcomer on the renovation block: a rooftop solar-power system that not only will lower your overhead costs and insulate you from a volatile energy market - but will likely add just as much to your home value over the long haul.
The technology has come a long way in the past 30 years, reports Businsess 2.0 Magazine. Most importantly, what’s starting to be good for contractors is looking efficient for homeowners, too. For starters, today’s solar systems are far more effective than their commercial predecessors; and most are warranted to last 25 years.
Home improvement loan incentives: Here’s something else to consider concerining these unique types of mortgage loans: the federal government and some states are offering serious incentives that can slash the price of installation (typically over $40,000 gross for a full system) in half.
In the California housing market and New Jersey housing market - the first states to allow so-called net metering, whereby homeowners are credited for electricity they generate beyond their own use - going solar can pay for itself in several years.
Home systems are still rare, so their value is difficult to assess, but home appraisers follow this general rule of thumb: Half the gross cost can be recouped in the home sales price as soon as it is installed. Granted, that’s well below the recovery rates for kitchens and bathrooms (which range from 70 to 90 percent), but your kitchen doesn’t pay the power bills.
Moreover, solar’s ability to lower energy costs also adds value. A study in Appraisal Journal found that for every utility-bill dollar saved annually because of an improvement, you gain $10 to $20 in property value. Therefore, if you can zero out a $1,000 annual electric tab by installing solar, you’ll get back $10,000 to $20,000 in home value.
Whether this holds true for you depends foremost on where you live. California and New Jersey lead the nation in offering financial incentives, but states such as Arizona, Colorado, Nevada and New York are ramping up quickly.
Another determinant is your typical electric bill.
“If it’s under $100 a month, people just put in solar because they want to be part of the solution,” says Mike Hall, VP at Borrego Solar in Berkeley. “When you get to $100 to $150 a month, the financial arguments start to take hold. Anything north of $200 a month is a no-brainer.”
