With the slowdown of the housing market, homeowners are rightfully concerned about the return on any remodeling costs they may be considering. If they sell the property in the future, some projects recoup more than others. For example, while the addition of a home office may fulfill a particular necessity for the current owner, the next purchaser may not have such a need. However, updating a kitchen with new cabinets and countertops tends to have a more universal appeal. The obvious lesson is that some specific home improvement projects yield a higher investment return than others.
So that leads to the question of how much return one can expect from a home improvement project. Well, it all depends on the project. But generally speaking, for most projects, the value of remodeling trended downward in 2007. Remodeling, much like the housing market, had been enjoying a boom for the past several years. The housing slowdown has affected remodeling activity equally due to slower appreciation and rising remodeling costs.
But back to the big question: What bang do you get for your buck as far as specific remodeling projects are concerned? Furthermore, how specifically does that correlate to the current and future housing market?
Many homeowners are foregoing a move in lieu of remodeling because of the concern of the existing housing depression and need to make informed decisions with realistic expectations on gain.
Remodeling Online Magazine, Cost vs. Value 2007 in conjunction with the National Association of Realtors, prepares a yearly report tracking 29 of the most common home projects, including repairs and additions. It utilizes data obtained from New England to the Pacific Coast. However, for comparison purposes, the East South Central Region, which encompasses Birmingham, Ala.; Knoxville, Tenn.; Louisville, Ky.; and Memphis, Tenn., will be cited as an example. The report reflects average data information collected, specifically for Louisville, Ky., that most closely reflects costs associated with remodeling such as labor, material, sub trade, and contractor overhead and profit. The information collected also compares to costs on a national average. Based on 2007 results in the Southeastern region, the highest rate of return on initial investment came from siding replacement at 93.6%, and the addition of wood decking at 91.4%. The lowest return was a sunroom addition at 62.5%, followed by a home office remodel and an upscale remodel of the master bedroom suite at 66.5%.
The results, as surveyed by Remodeling Magazine, mimic much the same movement as the housing market for the past two years. Housing and remodeling projects peaked in 2005, which was also the year homeowners could expect to recover the largest share of costs for remodeling projects. A year-over-year comparison of share of cost recovered for common remodeling projects shows, for example, that in 2005, all 22 projects covered in the Report returned at least 70 cents on the dollar in resale value, and in 2006, 23 of 26 projects performed as well. But in 2007, the number drops to 16 of 29 projects. Again, in 2005, 15 of 22 projects returned more than 85 cents on the dollar, but in 2006, that dropped to just four of 25; in 2007, it is down to just two of 29 projects. And while ten of 22 projects returned more than 90 cents on the dollar in 2005, none perform that well in the last two years.
In conclusion, if a homeowner is looking at resale as the major decision to remodel, the best course of action is to consult with a local contractor about construction costs and designs, and specifically to look closely at the comparable market sales and conditions in the area.
On the other hand, if the homeowner is looking to stay in the property on a long-term basis and is looking for these amenities strictly for personal use and satisfaction, a home remodel can satisfy most of those needs with a decent return on investment, just as long as one stays within budget.