Buy a home, then renovate it – it’s a natural progression for many American homeowners. The recession may have put the brakes on many remodeling plans, but there are signs that the situation is beginning to turn around.
The peak of remodeling activity in the U.S. came in 2007, when $146 billion was spent on home improvement projects. According to a new report from the Harvard Joint Center for Housing Studies, just over $118 billion was spent in the year ending the first quarter of 2009. But the center predicts that the spending decline will moderate through the remainder of this year.
“Remodeling spending by homeowners shows early signs of stabilization,” says Nicolas P. Retsinas, director of the center. “While the housing recovery has been erratic, a strengthening economy could produce spending increases on home improvement projects by the second quarter of next year.”
Consumer Reports” latest poll on home remodeling supports that prediction. More than half of the homeowners surveyed are planning a remodeling project in the next 12 months.
Choosing to remodel now means a homeowner can take advantage of a down market. A recent story in The Wall Street Journal reported that consumers are paying up to 20 percent less for their home remodeling projects than they would have during the building boom. Contractors who have seen projects evaporate are willing to bid less for a job just to keep busy, and some building materials, including lumber and insulation, are cheaper due to lower demand.
Herb and Eileen Longware, an upstate New York couple who just completed a long-anticipated, 1,300-square-foot addition to their home on Lake Champlain, capitalized on special retail offers and sales tax incentives to save on their project.
“We went across the lake when Vermont was having its Tax Independence Day and bought thousands of dollars worth of hardwood flooring and a wood stove, so we saved six percent right there,” Herb says, adding that he bought all his insulation on sale locally during a promotion at a home improvement center and received a $100 gift card for opening an account.
There are other pluses that work to the advantage of renovation-minded homeowners, including favorable financing for those with access to credit. The Longwares say that the four-percent interest rate on their home equity line of credit ( HELOC ) made financing their addition much cheaper than it would have been when they started planning it six years ago. They expect to pay off the loan at an accelerated rate to avoid future increases in their variable rate, saving themselves even more money.
The couple will also take advantage of federal tax credits for some of the energy-efficient products they purchased, including windows and doors, insulation, asphalt roofing and a water heater. Under the American Recovery and Reinvestment Act of 2009, qualifying products must be placed in service in a primary residence between January 1, 2009, and December 31, 2010.
Now that the workmen are putting the finishing touches on the new addition, Longware is happy with the outcome.
“Every year that you delay, the price of labor and building materials go up. But I think we built at a good time,” he says. “We got a good builder, we got pretty good pricing on building materials, and our HELOC rate is very attractive. All in all, we’re very comfortable with our decision to tackle this project at this time.”
