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Wednesday, July 30, 2008

Home improvements suffering in housing slump

Many homeowners are reluctant to put money into a home improvement for fear their home value will decline anyway, and they're probably right in this market. Home improvements, once used to help boost the value of homes, are the latest victim of the housing crisis. A recent article in one of the real estate news feeds that I get discussed this issue.

Harvard's Joint Center for Housing Studies says home improvements are set to decline by an annual rate of more than 11 percent into the first quarter of 2009. Kermit Baker, director of the Remodeling Futures Program of the Joint Center blamed weak home sales and the growing inventory of unsold homes for discouraging upper-end remodeling in many areas. Weak home sales and swelling inventories are the byproducts of a housing market plagued by foreclosures and tight underwriting standards.

The fallout prevents new home purchases and refinanced mortgages that often result in cash pulled out for home improvements. The same areas with the worst foreclosure conditions, California, the Southwest and Florida, are also finding fewer homeowners engaging in home improvements. Still, long term forecasts expect industry growth, Harvard projects a 44 percent inflation-adjusted increase in the remodeling business nationwide from now through 2015. Homeowners who make home improvements now will be better positioned for the next spurt in home prices.

This is fairly consistent with what I'm seeing locally. Many "builders" have reluctantly become home improvement contractors, just to make ends meet. Unfortunately, I still have to spend quite a bit of time trying to explain to perspective sellers why they won't get all of their home imporvement costs back upon sale. The other issue is that many home owners think of regular maintenance items like a new roof or getting the exterior painted or putting in new windows (after 30 years) as "home improvements." While they are improvements over what was there before, you just don't get credit from buyers for doing what you shold have been doing all along to keep up the property. Buyers will pay something extra for well done remodelings to the kitchens and baths or for a well finished basement (see my post of a few days ago on that); but even those will not return 100% of the invstment.

I normally advise people to do home improvements for their own enjoyment, while they own the house. The imporvements may add a little value to the sale price, and they surely will speed up the sale, compared to homes that still need major improvement projects. That's also a reason that I caution against doing last minute improvement projects, just before listing your home. They just don't pay back. It's better that you should take the cost of the imrovement project off the offer price.

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