Economy, residential market driving more homeowners to work with what they have

Renovation rebound
Originally published in the October 22, 2010 Houston Business Journal by Casey Wooten, Reporter

kitchen renovationHouston remodelers are finding plenty of work as the still-sluggish real estate market is causing homeowners to think twice before putting their homes on the market. But still, the size of such projects is shrinking.

Large-scale, ostentatious add-ons and expansions are few and far between, replaced by more practical projects that add to the overall value and marketability of the home, industry insiders say.

“We are overwhelmed with renovation projects,” says Kurt Lobpries, founder of Houston-based remodeling company Builders West Inc. “Instead of moving and upgrading to another home, people are deciding to stay where they are and fix something they didn’t like.”

bathroom remodel renovationStill, homeowners are worried about making large expenditures, and are spending money on maintenance and smaller projects, says Lobpries, whose company specializes in high-end construction. “Projects are smaller,” he says. “Instead of running 15 jobs, we’re running 30. You are having to do a lot more work to get close.”

Adding value
Breck Powers, principal at Houston-based remodeler LBJ Construction LP says customers today are asking for renovations to kitchens and bathrooms, work that holds the most bang for the buck when it comes to adding value to the home.

“In bathrooms, people are tending to like a lot of the natural stone tiles, different mosaic tiles and vessel sinks,” he says. “In kitchens, we are seeing a lot of larger ranges, six-burner ranges.”

Wine rooms are also an inexpensive, yet popular addition, says Lobpries.

Another value-added project is installing energy-efficient upgrades to existing homes says Powers. “We’re doing a lot more efficient air conditioners and windows, things to help make the house more comfortable and efficient and might help it sell down the road,” he says.

kitchen remodel lighting cabinets sink barstoolsSmaller scale
Unlike the heyday of spacious add-ons and elaborate swimming pools of years past, client’s newfound conservative remodeling requests are at least in part driven by the housing market, experts say.

In Houston, home sales have slid for the second consecutive month following the ending of the government’s homebuyer tax credit, according to the latest residential real estate report from the Houston Association of Realtors. August sales of single-family homes in the city fell 16.7 percent compared to August 2009.

“Our traditionally busy summer home sales months were much quieter because of the early spring home buying push that resulted from the tax credit, but Houston is still healthier than most other real estate markets around the country,” says Margie Dorrance, HAR chair and principal at Keller Williams Realty Metropolitan.

Moreover, a recent study from residential real estate website RemodelorMove.com affirms that homeowners are continuing to scale back on the size of their renovation projects in response to uncertainty over the economy. Sampling some 5,000 homeowners, the report shows that after a year of steady declines in 2009, the industry stabilized in 2010. The size and scope of projects, however, are much smaller compared to the height of the housing boom in 2007.

Much like what local remodelers are experiencing, the report singles out improvements or additions to small areas such as bathrooms as the most popular request by homeowners.

bathroom renovation, clawfoot tub, asian restroom“They (bathrooms) are also often the smartest remodeling project,” says Dan Fritschen, founder of RemodelorMove.com, in the report. “Small bathroom additions make good economic sense because they increase the home’s value.”

Still, while projects are smaller, the report points to signs of an increase in project volume. Also, homeowners’ interest in higher-end designs and expensive materials remains, with more than 12 percent saying they would shell out the extra dollars for luxury materials.

Michael Hydeck, president elect of the Des Plaines, Ill.-based industry group the National Association of The Remodeling Industry, says much of what the industry is seeing in Houston mirrors what remodelers from across the country are telling him.

“It’s pretty much the same all over,” says Hydeck, who also runs Pennsylvania-based remodeling company Hydeck Design. “Most guys who have been doing larger additions, for them that seems to be a thing of the past. Remodeling projects are more practical than they have been.”

Tracking spending on renovations
kitchen sink, remodel, renovationDemand for remodeling hasn’t returned to pre-recession levels, but there has been a noticeable improvement compared to a year ago, some contractors and suppliers say. A few reasons for the rebound in home renovations: Pent-up demand from people who put off projects during the recession; low interest rates for home equity loans; and less fear and uncertainty about where the economy is heading.

Spending on home renovations tends to track spending on new homes, says Kermit Baker, an economist at Harvard University’s Joint Center for Housing Studies. But remodeling is less cyclical because there are certain projects, such as a leaking roof, that can’t be deferred. Government-sponsored tax credits for energy-efficiency upgrades have helped bolster the home improvement industry, Baker says.

Nationally, spending on home improvements last year was $112 billion, according to the U.S. Census Bureau. Spending is expected to bottom out in the third quarter before recovering and finishing the year at $117.6 billion, a 5 percent increase over 2009, according to Harvard’s Leading Indicator of Remodeling Activity. That’s still down considerably from the pre-recession level of $144.9 billion in 2006.

“Nationally, we’ve seen a 75 percent decline in home building from peak to trough,” Baker says. “Remodeling will see a peak-to-trough decline of 20 percent to 25 percent.” --Michael DeMasi/The Business Review

Who Does What?
Depending on the size and complexity of a project, homeowners can choose to work with a number of different professionals:

  • General contractors manage all aspects of a project, including hiring and supervising subcontractors, getting building permits and scheduling inspections. They also work with architects and designers.
  • Speciality contractors install particular products, such as cabinets and bathroom fixtures.
  • Architects design homes, additions and major renovations. If a project includes structural changes, you may want to hire an architect who specializes in home remodeling.
  • Designers have expertise in specific areas of the home, such as kitchens and baths.
  • Design/build contractors provide one-stop service. They see a project through from start to finish. Some firms have architects on staff; others use certified designers.
    Source: Federal Trade Commission

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