Owners remodel instead of moving
WASHINGTON — According to federal estimates, by late 2011 the annualized dollar value of expenditures on renovations outstripped expenditures on newly constructed single-family homes — a huge change from prerecession years, when the ratio was sometimes 3-to-1 in favor of new construction.
Underscoring this trend: In January, the National Association of Home Builders' remodeling market index hit its highest level in five years. It's not that remodeling is moving into boom territory, said David Crowe, chief economist of the association, but rather that for many consumers, fixing up their house now fits their sentiments — and their finances — 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., says inquiries about possible remodeling projects have nearly tripled in the past 12 months. "I feel like people are starting to say, 'Well, we're not going to move anytime soon because, if we do, we're going to get 30 percent 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 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. "Now (owners) are being much more judicious about how they spend their money," said McKinstry.
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 now costs about $45,000.
Bruce Case, president of Case Design/Remodeling of Bethesda, Md., agrees that because of high underwriting hurdles in the mortgage market, the majority of his remodeling clients are tapping savings, retirement accounts, liquidating securities and the like. But 20 percent of his firm's dollar volume still involves some form of financing.
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 successfully using the Federal Housing Administration's renovation financing program known as "FHA 203(k)." Others who have solid equity stakes, high credit scores and other assets that they can bring to the table are persuading large national banks to give them a mortgage.
Kenneth R. Harney can be reached at [email protected]