January 2012

Cost vs Value Report 2011-2012

C vs V
According to Hanley Wood’s Residential Remodeling Index (RRI) and forecast, remodeling activity is reaching the bottom of a minor second dip in the third quarter of 2011. The national composite of the index had shown improvement in the first half of 2010 as housing and the economy appeared to be performing better under the temporary and illusory home buyer tax credits and other stimulus programs. However, the last four quarters reversed the 2010 improvements and set new lows for remodeling activity nationally.

Currently at 79.2, the RRI is forecast to end the year at 79.5, up 0.1% from Q2 2011. This is roughly the same level of activity we’ve seen so far this year. As we start 2012, however, the forecast calls for growth of 1% to 2% quarter-over-quarter (seasonally adjusted).

Of the 366 metropolitan statistical areas in the country, 20 markets should start to see pent-up demand for home improvement driving more activity and are expected to see growth of 10% or more between now and the second quarter of 2012 for the Atlanta area.
Chart 1


Some markets are performing better than others. The average cost-value ratio for cities in the Pacific region is 71.3%, due largely to higher resale values (see “Regional Comparison” of the report). The West South Central and the South Atlantic regions are also well-above average.

Even in markets where remodeling activity is showing signs of recovery, homeowners have given remodelers smaller budgets to work with. Elsewhere, existing home sales and cash-out mortgage refinances, traditional stimulants to remodeling activity, have not yet rebounded, and homeowner uncertainty about job security, home equity, and the overall economy have stifled remodeling investment.

That said, there is evidence that the future for remodeling is bright. Hanley Wood’s recent “Housing 360” research on consumer attitudes toward housing shows that 42% of homeowners believe it is a good time to remodel. (Hanley Wood publishes REMODELING magazine.) That number increases to 56% when household income is $100,000-plus, and it is 54% when home value is more than $500,000.

The research also suggests that tight credit is not a major impediment — 80% of respondents say they pay for remodeling with cash savings. And it confirms that 60% of home­owners 50 and older intend to stay in their homes through retirement, which will create demand for aging-in-place remodeling.

The Housing 360 research also shows that maintenance, repair, and replacement projects take precedence with homeowners. Cost vs. Value data confirm this once again this year, as replacement projects continue to perform better in resale value than other types of remodeling projects (see “Replacement vs. Remodeling,”). Seven of the 10 top-ranked projects are siding, window, or door replacement projects and their cost-value ratio is an above average 71.6%.

The high value of replacements is partly due to their relatively low cost. With the exception of the roofing projects, all replacement projects are priced at less than $19,000. In addition, most replacement projects immediately improve curb appeal, and the use of durable, low-maintenance replacement materials appeals to home buyers who increasingly are looking to reduce both the operational and maintenance costs of their homes.

The Attic Bedroom project is in the top 10 for the third year in a row, despite being the most expensive project in that group, averaging $50,148 nationally. One possible reason for the high value placed on this project, which is ranked third overall (72.5%), is that it is the least expensive way to add a bathroom and bedroom, and it does so within the home’s existing footprint.

It is also worth noting that Minor Kitchen Remodel is fourth overall (72.1%), two places better than last year. At an average cost nationally of just under $20,000, this project is the interior version of a replacement and includes new cabinet door and drawer fronts and hardware, as well as new countertops and appliances.

Not surprisingly, since 2004, when Minor Kitchen Remodel was added to the project list, it has been the best performing K&B project in every year but one.

Visit the official website of the Cost vs. Value Report website to download a PDF containing side-by-side national, regional, and city data tables. Or get the updated 2011–12 Cost vs. Value iPhone App at the AppStore.

Quote Of The Month

"Some men change their party for the sake of principles; others their principles for the sake of their party.”
Winston Churchill

A Tip Of The Hat To:

Doug Baker
Keller Williams Realty
1960 Satellite Boulevard, Ste 1100
Duluth, Georgia 30097

****Thank You**** 

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