The United States home improvement market has grown to nearly $250 billion, according to the most recent report released by the Joint Center for Housing Studies' Remodeling Futures Program at Harvard University.
Fueled by the home-ownership boom and strong income growth among high-earning households, improvement spending has climbed steadily for more than a decade.
“Ultimately, a remodel offer sellers two distinct but no less important benefits: pride of ownership and tax-free equity when they sell,” notes Sal Alfano, editorial director of Remodeling magazine, which will publish the 2006 Cost vs. Value Report in their next issue.
The 19th annual report, published in conjunction with Remodeling magazine, estimates the price and the percent of cost recouped on sale. This year’s results conclude that prices continue to climb for most remodeling projects, while the value of improvements at resale have returned to 2002 levels.
The report gives insight into what renovations have the best return on investment. Nationally, adding a family room, renovating a kitchen or bath or turning your master bedroom into a suite are all strong decisions, with homeowners usually recouping 70 to 80 percent of their expenditures. on average.
Economist Gopal Ahluwalia of the National Association of Home Builders observes unless you maintain your property, it will deteriorate. Rule of thumb is to redo kitchens and baths every 15 to 20 years to preserve the value of your investment. The cost of not keeping your home up to date translates into less money on the sale, and every seller’s nightmare, that their property will linger on the market for months.
Another decision when it comes to remodeling is how long do you plan on staying in your residence. The Census Bureau notes that the current average is 12 years, up from 10.5 years during the 1980s.
While the baby boomers still account for the majority of the market, the next generation - which includes millions of foreign-born and minority households - are moving rapidly into home ownership. These younger, more diverse homeowners are now reshaping the mix of demand for remodeling projects.
"Gen X-ers already rival baby boomers in per-household spending," said William C. Apgar, senior scholar at the Joint Center for Housing Studies. "Over the past decade, minorities in general, and Hispanics in particular, have become a rapidly growing market segment."
The return on a remodeling investment will also depend on the value of your home, particularly in relationship to the value of homes in your neighborhood. Another factor is the availability of new homes and the rate at which property values are changing around the neighborhood
"Local and regional differences in the resale value of remodeling projects are not surprising – the desirability of certain home features varies by neighborhood and is heavily influenced by buyers' expectations in a given area," observes M. Stevens, National Association of Realtors association president. "For example, adding a bathroom to a one-bathroom house in a neighborhood where most homes already have two may not return as much as remodeling an outdated bathroom in that same community."
The desirability of different remodeling projects varies by region and metropolitan area, according to the report. In the West, window replacements are highly valued, with 102 percent of costs recouped on sale. A minor mid-priced kitchen remodel may return more than 106 percent and a second story addition is worth 101 percent.
What's important to remember when perusing the "Cost vs. Value Report" is that return on investment is an approximation. In a neighborhood where property values are stagnant, a major remodeling project is unlikely to recoup as much as in neighborhood experiencing a rapid run-up in values. Additionally, seemingly small differences in size, scope, or quality of finishes can dramatically affect final project cost. Other variables, such as the value of similar homes in the neighborhood, the market's health, and the quality of the design and construction—help determine what homeowners can expect to recoup from their remodeling investment.
This year's Cost vs.Value Report notes that on average, home improvement project costs 20 to 25 cents on the dollar. The other 75 to 80 cents goes directly back into the home through increased value. Don’t forget to factor in the enjoyment that the property owner will get from these improvements.
This year’s annual report compares construction cost with resale value for 25 common remodeling projects in 60 U.S. markets and different regions. Our chart shows national and West Coast results.
For more on Southern California commercial properties there is a great information blog at www.socalindustrialrealestateblog.com.