Home Improvements in a Correcting Market

USA Today printed the following article today:

Fewer homeowners plan renovation projects:
By Noelle Knox, USA TODAY

As more people struggle to pay their mortgage and fewer take out home-equity loans, many homeowners have cut back their spending on remodeling kitchens, replacing windows and other improvement projects.
Two out of three homeowners who had planned an improvement project this year said they would wait until the market stabilizes, and about 11% said they were abandoning the idea of a project this year, according to an e-mail survey with 2,100 responses from homeowners in 11 metro areas.

The survey by the Zoomerang research firm, while not a random sample of homeowners, offers anecdotal evidence of the jitters about the housing recession. And it matches industry figures. The remodeling industry, with annual sales of about $280 billion, is expected to see a 2.6% annual rate of decline through autumn, the Joint Center for Housing Studies says. Freddie Mac says Americans pulled out only $38 billion in cash from their homes in the fourth quarter last year, about half the amount for that period in 2006.

As property values drop in many areas, some homeowners are finding it harder to refinance their mortgages and take out cash to finish the basement. Falling home prices can also reduce the money that a homeowner stands to recoup on a project.

"We are telling homeowners who want to sell in the next couple of years to do repairs or improvements to make the house look good, but not to spend a lot of money on a bathroom or kitchen," said Ron Phipps of Phipps Realty in Warwick, R.I.FIND MORE STORIES IN: Freddie Mac
A swimming pool can cost $50,000 to put in, for example, but it may add only $10,000 to the property's value even in a normal market, Phipps says.
Still, homeowners with access to cash have bargaining power. With construction plunging in many parts of the country, contractors are "hungry right now," Phipps says, and will do remodeling at cut-rate prices.
Lower interest rates are also easing the strain on homeowners who can afford a project, says Craig Smith of ServiceMagic.com, which screens remodeling contractors. He says traffic on the site was down in January, especially for big-ticket jobs, but rose about 10% after the Federal Reserve slashed interest rates.

Dean Herriges of Urban Herriges & Sons, a Milwaukee remodeling firm, says his business is "a little weaker" than last year "but healthy." He says he's still getting calls from baby boomers who have the money and the home equity for a new kitchen, although even they are asking more questions about prices.

One trend Herriges sees: "We are not finding as many younger people," who often don't have much home equity or savings.


In normal media fashion, the editor 'streamlined' my thoughts. Every suggestion needs to be to the individual situation. If one is going to sell soon, that is within two years, the improvements should be limited to repairs. Major improvements in a house that is about to go on the market, may not be the wisest strategy. If however, you plan to stay for a while and want to make a major improvement, it is a great time to do so. The builders and remodelers are in need of work and may be more willing to do the work for less money. Some improvements like swimming pools may not add any value to the home depending on geography. When the swimming season is 8 weeks, a $50,000 pool 'resort' will not have full re-embursement in the sales agreement. It is really prudent to get some market wisdom with a Realtor when making home improvements. The National Association publishes a list of expense and benefits of home improvements. Take the time to obtain that information from your Realtor.