10 Smart Reasons to Remodel Now
For many homeowners, the
downturn has a big upside.
From contractors who need
work to material supplies
exceeding demand, here's the
TOH take on why to hit the
home center today
From 2001 to 2005, the American house rose in value by an average of 50 percent. That made it a no-brainer to take out a home-equity loan for redoing the kitchen or adding a master bathroom. Not anymore. The average home price fell last year, for the first time in the 40 years that the National Association of Realtors has tracked sales data.
But every cloud, and perhaps every exploded bubble, has a silver lining. The slowdown has hit the construction industry hard and turned home improvement into a buyer's market. And that makes this a great time for a project, whether you hire out or do it yourself. As long as you didn't buy near the peak in a ZIP code where prices doubled or tripled and you plan to stick around to enjoy the results for a few years, there's almost no way you won't come out ahead. There are a lot of good reasons to do a project now. Read on to see all 10 of them.
After years of overzealous lending to high-risk borrowers, banks have closed the proverbial barn door and tightened up their standards. But for anyone with three things—a good credit rating, at least 20 percent equity left in his or her home, and proof of income—lenders are as eager as ever to extend fat lines of credit. "They need to offset all of those bad loans with quality ones," says Greg McBride, senior financial analyst at Bankrate.com. Meanwhile, the Federal Reserve's cuts have driven down home-equity interest rates from 8.25 percent to 6.4 percent in the past six months alone, and analysts expect them to fall even further.
A few years ago, contractors could afford to choose only big-budget projects, but now they need smaller jobs to keep their crews busy. Take northern Virginia contractor Tom Wotton, for example. "Our typical job was a 1,000- to 2,000-square-foot addition, for $200,000 or more," he says. "Now it's a $50,000 kitchen renovation." Woodbury, New Jersey, contractor Jay Cipriani has dedicated a handful of his 21 staff tradesmen to "handyman jobs" with price tags of $15,000 or less.
"Two or three years ago, when you called a contractor, it could be six months before he even returned your call," says Bernard Markstein, the director of forecasting and analysis for the National Association of Homebuilders. "Today, all you have to do is think about a project you want to do, and three contractors will call you." He's exaggerating, of course, but gone are those 12- or 18-month waits. So as soon as you sign the deal for your new basement playroom, you'd better start clearing out the junk: The framing crew may show up in a matter of days.
With the falloff in demand, construction materials are readily available, and many have come down in price. Between January 2007 and January 2008, framing lumber fell 15.6 percent, insulation 3.6 percent, and wallboard a whopping 22 percent. That makes taking a weekend to beef up the insulation in the attic or finally finishing off that corner of your basement a particularly cost-effective project right now. You can also get some items more quickly. "When we were running full tilt, turnaround times were 14 to 16 weeks," says Vince Achey, vice president of sales and part owner of Plain & Fancy Custom Cabinetry. "Now they're 8 to 10 weeks."
To fill their calendars, some contractors have begun discounting their services. "We're offering a number of 10 and 15 percent off programs," says Brian Hutto, a vice president of Home Depot's Home Services, the company's installation services unit. Increasingly, the home center has been discounting labor at its 2,000 stores, and independent contractors around the country report scaling back their prices similarly.
When the home-improvement business was going gangbusters, anyone with a pickup truck and a metal clipboard could call himself a general contractor. He didn't need experience, skill, or good working relationships with subcontractors to find business. Times are tougher, and it's the marginal guys who have gone under. "The contractors who are still standing are more likely to be those who have been around longer, who are more professional, who produce more accurate bids, and who are better at customer relations," says Harvard's Kermit Baker. Of course, you still need to do your due diligence and check references so you don't wind up being a failing contractor's unfortunate last client. Also, be wary of new-home builders trying to drum up renovation business; they may not have experience with older houses or working directly with homeowners.
Given the state of real estate, you're probably not going to be selling for a few years. And that means you can truly enjoy the improvements you make. "We're in an era where, rather than stretching for a trophy home, we can think about ways to modify the houses we're already in to make ourselves happy," says Daniel McGinn, author of House Lust, a book about how America became obsessed with McMansions, vacation houses, and "investing" in real estate during the boom. Let's face it, after all the expense and stress of a kitchen remodel, wouldn't you like to settle down at that honed-granite breakfast nook for a while?
Just as a home improvement won't drastically increase the sales price of your house, it won't drive up your property taxes, either. "If you put $15,000 or $25,000 into a $200,000 house right now, it's probably still a $200,000 house," says San Antonio tax attorney Stanley Blend, who chairs the American Bar Association's section on taxation. Since property tax assessments are based on what a willing buyer would pay a willing seller in the current marketplace, there's a good chance that your home improvement will have little or no effect on your assessment, at least until the market picks up again.
Had you done your project a few years ago, you probably wouldn't have thought much about energy efficiency. But heating fuel and electricity costs have doubled over the last two years, says Paul Scheckel, senior energy analyst at the Vermont Energy Investment Corp., a nonprofit agency charged with improving energy efficiency in the state. That means the additional cost of choosing a high-efficiency furnace, say, which might have taken 10 years of lower utility bills to recoup, could now be recovered in 5. And you'll probably be in the house long enough to earn back that entire outlay. "Plus, energy efficiency will make your house more comfortable," Scheckel says, "and it will reduce your carbon footprint."
If and when you do put your house on the market, shoppers will appreciate the upgrades you've made. "I always type up a list of improvements that the seller has done and when they did them," says Fairfield, Connecticut, Realtor Bob Stone, a director of the Fairfield Board of Realtors. Work done three to five years back shows that you took care of the house, whereas more recent upgrades can look as if they were done to promote a quick sale. "It's like the difference between simply detailing your car before you sell it and having a precise record of changing the oil and keeping it tuned up over its life," Stone says. Making improvements now will best position you to make your move as soon as the market picks up. While everyone else is calling contractors for those get-set-to-sell projects, you won't be. Your house will be ready.