Home remodeling to stay or sell

home remodeling
Home remodeling (infographic from census.gov)

The Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University predicts expanded growth of home remodeling and renovations through most of 2018.  That’s a good indication that the economy has picked up and the many homes that fell in disrepair after the Great recession are getting the much-needed attention to extend their functionality.

It wasn’t that long ago when Kermit Baker wrote about a crisis of the declining housing stock due to extensive deferred maintenance (The Return of Substandard Housing; housingperspectives.blogspot.com; February 27, 2013).  The article written for the Joint Center for Housing Studies of Harvard University highlighted the considerable reduction of home maintenance as measured by home owner “maintenance spending” during the Great Recession.  This seemed to be a low point for the country’s housing stock.  The 28 percent decrease in maintenance spending between 2007 and 2011 essentially nullified the renovation spending during the housing boom.

Home remodeling activity
Home remodeling activity Q3-2017 (graph from jchs.harvard.edu)

The Remodeling Futures Program releases a quarterly data for Leading Indicator of Remodeling Activity (LIRA). The LIRA is a “a short-term outlook of national home improvement and repair spending to owner-occupied homes.”  The most recent data indicates that home remodeling and repair spending will escalate from the fourth quarter of 2017 into the third quarter of 2018, estimating an increase from 6.3 percent to 7.7 percent.  The significant increase in home improvement spending is attributed to a strengthening economy, home equity gains, and low home re-sale inventory.  Chris Herbert, Managing Director of the Joint Center for Housing Studies is optimistic about maintenance spending.  Herbert said:

“Recent strengthening of the US economy, tight for-sale housing inventories, and healthy home equity gains are all working to boost home improvement activity…Over the coming year, owners are projected to spend in excess of $330 billion on home upgrades and replacements, as well as routine maintenance.

The current LIRA data doesn’t include the effects of recent hurricanes.  It is expected that those recent disasters will significantly increase the anticipated projected maintenance spending.

Home owners really have no choice but to spend on renovations, remodeling and repairs, especially if they are planning on selling their home.  Most home buyers want a turnkey home, where the home is fresh and new and offers minimal maintenance during the first year of ownership.  The desire for a turnkey home is probably why new home sales are at a ten-year high.  This week, the US Census Bureau (census.gov) released new home sale data that indicates a month-over-month increase of 6.2 percent, and a year-over-year increase of 18.7 percent!  To compete with other re-sales and new homes, home sellers must factor in the cost of home renovations.

There are many home owners who still can’t afford to move.  The fact that many are still priced out of the move-up market has been a major issue holding back the housing market.  This phenomenon is also responsible for continued low home re-sale inventories.  As a result, many home owners are staying in their homes much longer than anticipated.  The National Association of Realtors indicated in the Home Buyer and Seller Generational Trends Report 2017 (nar.realtor) that home buyers anticipate staying in a home about twelve years.  This is an increase of about five years compared to a decade ago.

Although many home owners still can’t move, they are deciding to do home “make overs.”  The make overs will give their homes a fresh look, that typically include new floors and paint schemes.  Additionally, kitchen and bathroom renovations modernize the home.  However, home owners needing more room, are opting to expand their homes to give them larger spaces.  Some home owners are going beyond the basics and creating different spaces by moving walls.

Regardless of your reasons for home renovations and repairs, home improvement experts recommend to create a budget and stick to it, and always hire licensed contractors.

Copyright© Dan Krell
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The roof overhead

How to know your roof needs to be replaced (http://phoenixroofingteam.com)

People often ask why I frequently talk about home maintenance, and specifically the importance of maintaining the roof. The reason is simple; many issues can develop with an improperly maintained or neglected roof. Besides allowing water to penetrate directly into the inside of your home from a leaky roof, water can also penetrate a basement when the roof and gutters are not properly directing water away from the foundation.

Besides leaving unsightly stains, water entering the home from a leaking roof can seep through walls and ceilings deteriorating drywall and even possibly weakening floor trusses/beams. Water from improperly moved water can create standing water around the home, and enter into the basement. Additionally, any water penetration into the home has the potential to promote mold growth; which not only can affect your health but your home’s structure as well.

It’s obvious that a leaking roof is a problem; and now you know how an unchecked leak can damage your home over time. The good news is that proper maintenance can prevent major leaks and resulting damage. Visually checking the roof (from the ground) regularly can make you aware of general condition of the shingles, flashing, gutters and downspouts. Curling, lifting, broken or missing shingles as well as missing or broken flashing are potential water entryways into your home; and it may be an indication that you should call a licensed roofer to further inspect and repair the roof.

Debris on the roof can not only damage the roofing material, it can also clog or damage the gutters and downspouts. The purpose for gutters and downspouts is to carry water away from the home so as to prevent soil erosion around the home’s basement and foundation; which is a common cause of outside water penetration into the basement. Clogged or damaged gutters and downspouts should also be repaired in a timely manner. Experts recommend to clean and inspect the gutters and downspouts twice a year to ensure proper function.

The two most common roof types are the flat roof and the pitched roof. Flat roofs are typically covered by a membrane, and are thought to be more vulnerable to weather than pitched roofs because of the limitation of gravity’s water draining action. Pitched roofs can be covered in a number of materials. Although shingled roofs are very common, metal roofs are becoming more popular because of its durability. Shingles can be made of many different materials for aesthetic and architectural needs (including solar panel shingles); but in our region the asphalt shingle is most common, and generally has a life expectancy of twenty to fifty years (depending on the quality).

If it’s time to replace the roof, have several roofing contractors provide you with estimates detailing the materials used and estimated labor. A cheaper estimate may not only be the difference in the quality of shingles; but also may not remove the old shingles, leaving them intact under the new roof. Make sure your estimate includes contractor clean up, so you’re not left with piles of old roofing material in your yard.

Always hire a Maryland Home Improvement Commission (MHIC) licensed contractor. The MHIC maintains a Guaranty Fund that compensates homeowners for actual monetary losses due to poor workmanship or failure to perform a home improvement contract; however, The Fund only applies to work done by licensed contractors. The contractor’s license can be checked on the MHIC website (dllr.state.md.us/license/mhic).

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The cost of doing nothing – deferred maintenance and home values

HousesIf you want to have one of the faster home sales in the area, you’re probably going to have to wait until you die. According to a 2012 study, “estate sales” sell faster than other homes. Benefield, Rutherford, & Allen’s study compared time on market and price of estate sales to regular sales, and quantified what many ostensibly know: estate sales sell about 3.4% faster and about 3.6% less than other homes (Justin, D. Benefield, C. Rutherford Ronald, and T. Allen Marcus. “The Effects of Estate Sales of Residential Real Estate on Price and Marketing Time.” Journal of Real Estate Finance and Economics 45.4 (2012): 965-81).

Although the study is one of many recent studies raising awareness about real estate outcomes in our aging population, one of the main considerations for the rapid time frame and discounted sale price is deferred maintenance; and the issue of postponing home repairs and updates is prevalent among all age groups.

Before Kermit Baker wrote “The Return of Substandard Housing” for the Harvard Joint Center of Housing Studies, it was not quite known how much less home owners spent on home maintenance during and immediately after the Great Recession. However, the 2012 study indicated that “improvement spending” decreased 28% between 2007 and 2011, which essentially “erased” such spending during the housing boom (housingperspectives.blogspot.com).

And as the economy slowly improves and home prices increase, you might expect that home owners will reduce deferred maintenance and once again spend on home improvements. According to Craig Webb (Remodeling Activity Rose Again in 1Q, RRI Shows Nation remains on track to hit record remodeling pace this fall; May 18, 2015; remodeling.hw.net), the Residential Remodeling Index (RRI) increased 1.4% in the first quarter of 2015 compared to the previous quarter, indicating that improvement spending is indeed on the rise (albeit below the 2007 peak).

But what’s the cost of doing nothing? Deferred home maintenance is cumulative, and its effects can be wide ranging. For many, having put off home maintenance and repairs has impacted home sales in recent years, and may continue to be a factor in years to come. Although average home prices have increased, many home owners have found that a lack of home maintenance, repairs and updates over the years is an impediment to selling their homes at higher prices – or even at all.

A mindset exists among many home owners, and even real estate agents, that years of deferred maintenance can be overcome with some updating and minor repairs just before a home sale. And although improvements will certainly make your home more appealing to home buyers, it won’t necessarily increase your home’s value as much as you think (or as much as you’ve been told).

Before undergoing any project, crunch the numbers and determine the value of your repairs/updates, and how that might realistically affect your estimated sale price. Remodeling Magazine’s annual Cost vs. Value Report (costvsvalue.com) can give you an idea of the return-on-investment (ROI) for improvement projects. Getting back to your expectation of adding value – most improvement projects will only return a fraction of the cost in today’s market.

If you are making improvements, you should consider hiring reputable, licensed contractors who are familiar with the permitting process and building code requirements; because ROI is not always determined by the amount spent on the project, but on the quality of workmanship as well.

Original published at https://dankrell.com/blog/2015/06/12/the-cost-of-doing-nothing-deferred-maintenance-and-home-values/

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Want to increase your home’s value? Don’t use a nuke

Home Improvements

A recent blog post titled, “Want to Increase Your Property Values? Try a Nuclear Warcaught my attention.  Robert Beckhusen & Matthew Gault, in their June 22nd post on Medium.com discussed a couple of unclassified defense reports on the effects and aftermath of a nuclear war (including the 1965 study “The Effects Of Nuclear Weapons On A Single City”). They discovered that these reports were a morbid reminder of the consequences; one report stated: “In a macabre sense, the surviving population would be individually ‘wealthier’ than before the attack…” because surviving buildings would be more valuable and indirectly increasing the survivors’ per capita wealth.

These reports were speculative, and a conclusion could be that your home’s value could be tied to usability and location; homes in dense urban areas are expected to be valued more. However, as the 1965 report stated, “…any joy among the surviving population may be quite shortlived…” because there is no way to know if the surviving buildings and land are useable (due to radiation or other reasons).

As a means to increase your home’s value, nukes are not the answer. Accepted methods of adding value to your home include home improvements that you might expect: increasing the living space; adding a deck; improving the landscaping; updating the home’s systems; and renovating the kitchen and bathrooms. However, making home improvements do not always give you a dollar for dollar return; and some improvements could even detract from your home’s value too! Remodeling Magazine’s Cost vs. Value Report (costvsvalue.com) can give you an idea of the return on investment (ROI) for improvement projects.

Typically the trends indicate that the ROI of replacement projects are higher than that of remodeling projects. The 2014 Cost vs. Value Report indicates that the top ROI for midrange projects nationally include: installing a new steel entry door; adding a deck; converting an attic into a bedroom; replacing the garage; and a minor kitchen remodel.

Compared to the ROI locally for mid-range projects in the Washington DC region include: installing a new steel entry door; replacing the garage door; adding a deck; minor kitchen remodeling; and installing new vinyl siding.

As you peruse the Cost vs. Value Report, you may notice that a project Cost vs Value ratio can sometimes exceed 100% (recouping more than was spent on the project at resale); this is sometimes attributed to an active housing market, and/or market trends. Overall average home values can affect Cost vs Value trends too. A higher ROI was realized at the peak of the housing market in 2005; and the subsequent decline was most probably due to devalued home prices. And as you might expect, ROI on many improvement projects have increased over the past year because appreciating home values. Also, regional and metro area differences exist on improvement project Cost vs Value ratios because of labor and materials costs. Some experts cite the abundance of workers seeking employment as a reason for decreased labor costs in some areas; while material costs for some projects may be similar, and other project materials are more expensive.

Another consideration when making home improvements is that the ROI and your home’s value can be affected by the quality of workmanship and installation. Hiring reputable and licensed contractors or builders who are familiar with the permitting process as well as building code requirements is always recommended.

by Dan Krell
Copyright © 2014

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. This article was originally published the week of June 23, 2014 (Montgomery County Sentinel). Using this article without permission is a violation of copyright laws. Copyright © Dan Krell.

The decline of today’s housing stock

by Dan Krell © 2013
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Is the decline of today’s housing stock a concern or an opportunity?

new homeWhile taking part in a recent home inspection, the home inspector unexpectedly began to talk about the concern for today’s housing stock. After listening intently for a short time, I realized that his dissertation about the quality of existing homes was not just his opinion or home inspectors as a group, but rather a consensus of growing concern among housing experts of the condition of many older homes.

The issue that the home inspector pointed out is that much of the existing housing stock is aging without significant necessary maintenance or repair. Because the lifespan of many of home systems (including roofs and HVAC) range from 15 years to 30 years, as well as structural materials can have an average lifespan of 40 years; he surmised that homes that exceed thirty years of age are at significant risk.

As a home inspector, this gentleman has a unique perspective about how people take care of their homes; and unfortunately, many home owners have put off important and necessary maintenance and/or system replacements such that the home’s condition is considerably affected. And although he didn’t attribute the deteriorating housing stock with the recent recession, it is assumed that the recession contributed to the housing stock’s declining quality – if not accelerated it.

A February 2013 article by Kermit Baker for the Harvard Joint Center of Housing Studies entitled “The Return of Substandard Housing” highlighted the relative considerable reduction in maintenance spending by home owners during the Great Recession. He stated that “improvement spending” decreased 28% between 2007 and 2011, which essentially “erased” such spending during the housing boom (housingperspectives.blogspot.com).

Mr. Baker concluded that this crisis needs attention, stating; “The longer-term fate of the current slightly larger number of inadequate homes is unknown. Many of these homes likely will be renovated to provide affordable housing opportunities. However, many may not recover without extra help. Given the extraordinary circumstances that many homes have gone through in recent years, particularly foreclosed homes that often were vacant and undermaintained for extended periods of time as they worked their way through the foreclosure process, they may be more at risk than their inadequate predecessors…

Considering the number of re-sale contracts that are falling out because of home inspections, this all makes sense. New home sales aside, many home buyers want “turn-key” homes that are updated with relatively new systems. It seems as if that home buyers don’t want to be burdened with major maintenance costs for the first five years of ownership. Some of the costly considerations that can put off home buyers are replacing a roof, windows, siding, and/or HVAC. Additionally, hazardous materials that can be commonly found in older homes (such as asbestos and lead paint) are becoming an increasing concern with first time home buyers.

The reason is uncertain, but during the “go-go” market of 2004-2006, a home’s condition didn’t seem to be as much of a concern for home buyers as it is today. However, one reason may be that during that period home equity loans were relatively easier to obtain to finance renovation projects.

The result of the deteriorating quality of the existing home stock may be that we may see declining values in homes requiring the most attention; such homes may either be renovated by home buyers, or might be razed to make way for a new home.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published the week of June 10, 2013 (Montgomery County Sentinel). Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.