Do you fit any of these descriptions?
•You came through the housing bust and recession far more debt-averse than you were before.
•You've been reluctant to consider selling your house because you don't believe you'll get what it's really worth.
•Buying a new home is out of the question, even with today's low interest rates, because it's so difficult to qualify for a mortgage.
•You've gradually come to the conclusion that it's smarter to improve the house you already own — spend some money on making it more comfortable, more up-to-date — and just stay put for a while.
Whether you share them or not, sentiments like these are having profound effects on real estate markets across the country, fueling post-recession interest in remodeling. According to federal estimates, by late last year the annualized dollar value of expenditures on renovations outstripped expenditures on newly constructed single-family homes — a huge change from pre-recession years, when the ratio was sometimes 3 to 1 in favor of new construction.
Underscoring this trend: In late January, the National Assn. of Home Builders' remodeling market index hit its highest level in five years. David Crowe, chief economist of the association, said that for many consumers, fixing up their house fits their sentiments — and their finances — far better than selling or buying.
Interviews with builders and remodelers in different parts of the country point to important changes in homeowner strategies. In Seattle, Joe McKinstry, president of Joseph McKinstry Construction Co., said inquiries about possible remodeling projects have nearly tripled in the last 12 months.
"I feel like people are starting to say, 'Well, we're not going to move any time soon because if we do, we're going to get 30% less than the house is worth. Why don't we do something in the kitchen or bathroom for our own enjoyment, since we're not going anywhere real soon?'"
Generally the projects that people want to do are no longer on the grand McMansion showoff scale, but smaller, more modest, less costly efforts than five to seven years ago, with more emphasis on finishing details and quality than square footage.
Owners "are being much more judicious about how they spend their money," McKinstry said. "They've gotten smarter and more analytical" about what they want to invest in their real estate.
Bob Peterson, chief executive of ABD Design/Build in Fort Collins, Colo., also is seeing a significant jump in interest in renovating, especially from owners who have been in their houses for years, have built up some savings and managed to get through the recession without falling behind on their mortgages.
The average project that Peterson's firm is doing costs about $45,000, and 90% of his clients are finding ways to pay cash.
"If they're financing anything, they're not telling us about it," said Peterson, who is also chairman of the Remodelers Council of the National Assn. of Home Builders.
Bruce Case, president of Case Design/Remodeling of
, Md., agrees that because of high underwriting hurdles in the mortgage market, the majority of his remodeling clients are tapping savings, retirement accounts, securities and the like. But 20% of his firm's dollar volume still involves some form of financing, particularly for higher-cost projects.
Where do these folks go for their money? Case says local and regional banks and credit unions are increasingly important sources. They tend to know the local real estate environment better and "are willing to look at [applications] more holistically."
Some clients are using the
's renovation financing program known as FHA 203(k). Others who have solid equity stakes, high credit scores and other assets they can bring to the table are persuading large national banks to give them a mortgage. And a few are pulling on lines of credit that weren't yanked or slashed during the recession.
What Case and other remodelers are not seeing is clients who fret about paybacks from the improvements they make. Most owners want assurance that their renovations will enhance the property's market value, but boom-time expectations of immediate 100%-plus returns on investments are gone.
Most people are happy with modest returns, remodelers say, which is right in line with what's happening overall in the real estate market: a slow, modest recovery, spurred by modest and realistic expectations about where we're headed and how fast we'll get there.