We’ve all seen the effect housing prices have on home equity.
A major source of wealth for many homeowners, lower values also significantly influence decisions regarding home improvement. For some people, it becomes a challenge to even keep up with the cost of routine maintenance and repairs.
Research shows that the “return” on home improvement expenditures tends to be lower during periods when home prices are weak. In their annual Cost vs. Value reports, Remodeling magazine and the National Association of Realtors® (NAR) estimates that near the peak of the housing market in 2005, improvement projects on average returned almost 87 percent of the cost in terms of higher home values.
This ratio then fell each year through 2011 as home prices dropped, with improvements yielding less than 58 percent of the project cost. From there, the numbers started climbing right along with the emerging recovery in housing prices.
Now, their latest report indicates that for 2014, the cost-value ratio stands at 66.1 percent, a jump of 5.5 points over last year and the largest increase since 2005, when the ratio jumped 6.1 points to reach its high of 86.7 percent.
With the average age of owner-occupied housing stock in the U.S. hovering around 35 years old, continued recovery in both the housing market and economy as a whole is anticipated to spur renewed interest and investment in home improvement.
After spending a great deal of time indoors thanks to our recurring deep-freeze conditions this winter, I’m sure many of us already have a few ideas.
In fact, the biggest gainer according to the current Cost vs. Value report reflects our unpredictable weather. A backup power generator, an $11,742 project that supplies electricity during a utility outage, increased 28 percent nationally to an all-time high of 67.5 percent of cost recouped value, moving it to number 25 in the overall ranking.
Several big-ticket projects were also among the biggest gainers including attic bedroom remodels with an average cost of $49,438 and basement remodels with an average cost of $62,834 which when compared with building an addition represent a more affordable way to add living space to an existing home.
At the next cost level, 9 of the 14 projects with costs in the $5,000 to $25,000 range were replacements, with upscale/mid-range siding and windows leading the way.
Overall, the top replacement remains a steel entry door and a deck addition also continues to be a high return-on-investment project, along with a minor kitchen remodel (under $25,000).
As investment in our nation’s housing stock continues to pick up - lenders and new owners are rehabilitating millions of foreclosed properties while owners of older homes are catching up on improvements with an eye on remodeling projects that will accommodate future needs (aging in place/universal design elements) and yield a return when they are ready to sell.
One of the top areas where the share of home improvement expenditures remained relatively strong throughout the recession and beyond – projects designed to improve energy efficient and environmental sustainability - is expected to grow even faster now.
According to Harvard University's Joint Center for Housing Studies, the potential benefits from additional energy-related retrofits are vast given that homes account for about 22 percent of all US energy consumption - bringing homes built before 1970 up to the efficiency levels of the newest stock would cut total residential energy use by 10 percent. Even bringing these older homes up to the efficiency of those built in the 1970s or 1980s would save about 5 percent of current residential energy consumption.
In a recent interview with Qualified Remodeler, Harvard’s Kermit Baker explained how efficiency investments have driven a range of other remodeling issues like healthy homes, water conservation, materials use and alternative fuels. Based on Joint Center surveys of remodeling contractors, high-efficiency toilets, low- or no-VOC paints and mold resistant gypsum wall panels are among the most popular green products used in home improvement projects.
“You can even make an argument that the home technology market has been triggered by issues such as efficiency and energy utilization,” Baker said.
The recent news that “Google buys Nest to feather its data trackers,” definitely supports his case. With Google Nest focused on the connected “Smart Home,” energy efficiency will become a piece of much bigger platform that includes safety/security (Nest Protect), entertainment, shopping, local information distribution, transportation/navigation and other services.
What improvements do you have planned for your home this year? Let me know at email@example.com.