||Remodeling Market Getting Fixed Up
A flood of foreclosed homes in need of fixing up is fueling a rebound in the remodeling business.
Like the rest of the housing business, home remodeling activity fell during the last few years. Now the residential improvement market is rallying -- and the millions of previously foreclosed homes that are changing hands are part of the reason.
"There are about 5 million or so foreclosed homes at present and more coming on all the time," said Kermit Baker of the Joint Center for Housing Studies at Harvard University. "When they come out the other end, a lot of work needs to be done."
Owners who are about to lose their houses let repairs slide.
"And increasingly, we are finding homes that are trashed," Baker said at a recent meeting of the National Association of Home Builders in Florida.
Buyers of foreclosed and distressed houses typically spend 15 percent more on fix-ups and improvements than buyers of nonforeclosures, Baker said.
The increase in foreclosure repairs is welcome business for an industry that has seen its volume slashed by the recession and housing downturn.
U.S. remodeling expenditures fell about $40 billion from 2007 to 2009, according to data from the center for housing studies.
"This has been the most serious downturn since the government began tracking this industry back in the 1960s," Baker said.
Even so, the remodeling decline hasn't been as severe as the drop in new-home starts. And the industry has already begun a comeback.
Remodeling in total dollar volume is now bigger than homebuilding and accounts for about 70 percent of total U.S. residential expenditures.
"Remodeling typically accounts for 40 or 45 percent of the residential market," Baker said.
Remodeling should grow about 6 percent to 7 percent this year and again in 2012, according to the housing center’s latest forecast.
Spending for home remodeling varies substantially around the country.
In the Dallas-Fort Worth area, the average annual expenditure for home improvements is $2,270. That's much less than in coastal markets, including Boston, which averages $4,670, and Los Angeles at $4,470.
And the kinds of home remodeling projects that are in favor have changed with the slump in the economy and home prices.
"Upper-income owners who were responsible for most of the growth early in the last decade cut back their spending the most," Baker said. "When house prices dropped, so did home improvement spending."
There have been reductions in the number of room additions, whole house remodeling and even kitchen redos, the industry's bread and butter, the National Association of Home Builders found in a poll of contractors.
"The most common type of job is still the kitchen remodel, but that's fallen off, too," said Paul Emrath, a vice president of the builders association's research division. "Handyman services are the one thing on the increase."
Remodelers say they are adjusting their business to meet more frugal times.
"The projects have gotten smaller," said Houston remodeler Bob Shaw, who's seen the average remodeling deals he does drop to less than $100,000 from $125,000 to $150,000 a few years ago. "The reins on the projects are much, much tighter."
Falling home values and worries about obtaining financing have also put the brakes on fancy remodeling jobs.
"The first they want to know is how much can I sell my home for when you are through," said Geep Moore, a contractor from Louisiana.
Consumers still sometimes opt for appearance over practicality.
"The majority of our clients will still put granite countertops in before they put in an upgraded window system," said Bob Peterson, a remodeler from Fort Collins, Colo.
One area seeing solid growth is the replacement of existing systems and appliances to save energy.
Baker expects this trend to gain even more steam in the years ahead.
"The energy retrofit side and green remodeling seem to have held up better," he said. "And once we see home energy costs start to rocket up, we will see even more of this."
(Source: The Dallas Morning News, 01/17/11)
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