An Investment You Live In
Home Improvements a $228 Billion Industry
It’s an old truism that, for most of us, our home is our most important investment. But today, Americans are embracing that idea with greater fervor than ever — and pouring more money in to enhance their investments.
Call it Remodeling Nation: With shelves full of magazines and endless TV series devoted to home improvement, hundreds of thousands of professionals and millions of paint–spattered do–it–yourselfers, fixing up the old roost has become a major industry.
The U.S. Census Bureau estimates that Americans spent $228.2 billion on improvements and repairs to residential properties in 2006, 6.1 percent more than in the previous year. State–level figures are not available, but assuming Texans matched the average national spending pace, they spent about $18 billion on home repairs and improvements last year — roughly $760 for every man, woman and child in the state.
How Do You Want to Pay for That?
Recouping on Remodeling
The annual Cost versus Value report prepared by Realtor and Remodeling magazines compares average costs for 25 home–improvement projects with the average increases produced in the home’s total value. In Texas’ region, recoup values for the projects ranged from 63.2% to 86.6% of costs.
Home Improvement Projects:
Investment versus Recoupment, 2006
For Arkansas, Louisiana, Oklahoma and Texas
|Addition||Avg. Cost||Avg. Resale||% Cost Recouped|
|Bathroom – midrange||$25,563||$19,747||77.2%|
|Bathroom – upscale||$55,453||$41,885||75.5%|
|Master Suite – midrange||$84,411||$59,331||70.3%|
|Master Suite – upscale||$163,192||$113,529||69.6%|
|Remodel||Avg. Cost||Avg. Resale||% Cost Recouped|
|Bathroom – midrange||$11,585||$10,034||86.6%|
|Bathroom – upscale||$35,111||$27,862||79.4%|
|Kitchen – major midrange||$50,978||$40,319||79.1%|
|Kitchen – major upscale||$103,879||$79,139||76.2%|
|Kitchen – minor||$17,037||$14,033||82.4%|
|Replace||Avg. Cost||Avg. Resale||% Cost Recouped|
|Roofing – midrange||$11,209||$9,553||85.2%|
|Roofing – upscale||$19,759||$15,799||80.0%|
|Siding – fiber cement||$12,874||$11,102||86.2%|
|Siding – foam–backed vinyl||$10,101||$7,777||77.0%|
|Siding – vinyl||$8,218||$6,593||80.2%|
|Windows – vinyl midrange||$9,284||$6,931||74.7%|
|Windows – vinyl upscale||$11,888||$9,410||79.2%|
|Windows – wood midrange||$10,038||$7,946||79.2%|
|Windows – wood upscale||$15,694||$12,355||78.8%|
Source: Realtor magazine.
Most Texans who borrow to pay for home improvement projects do so either through a home improvement loan or a home equity loan, according to Laurie Roberts, president of University Federal Credit Union’s real estate group in Austin. Both have similar interest rates and closing costs, but each has its own advantages and disadvantages.
“A home equity loan is good in that you get all your money at once, and you can spend it exactly as you wish and with whom you wish, for instance to pay a tiler, a deck builder or other subcontractors,” said Roberts. “But you can only do one a year, and the total of your mortgage and your home equity loan cannot exceed 80 percent of the home’s fair market value.”
Home improvement loans, by contrast, are less flexible but can be made for a greater share of your home’s worth.
“A home improvement loan can go up to 100 percent of your home’s value, so you could have a mortgage worth 80 percent and borrow another 20 percent,” Roberts said. “The negative part is that you must have one general contractor to whom the payments are made. It’s a simple choice if you already have or are planning to use a general contractor, but you don’t have nearly the flexibility you have with a home equity loan.”
Another increasingly popular option is the home equity–secured line of credit, which allows you to draw down money only as you need it, as if it were a savings account.
“A line of credit’s great [for flexibility] — you’re only paying interest on however much money you have drawn,” Roberts said. “The disadvantage is that 99.9 percent of them are variable rate.
“So if you took out a home equity line of credit three years ago, you would have started with a very good interest rate, but today you’d be at 9.25 percent interest, which is pretty high,” she said.
Recouping Your Costs
One of the best reasons for home improvement is to increase the value of your biggest financial asset, particularly if you’re thinking of selling.
According to the annual Cost vs. Value Reports jointly prepared by the industry magazines Remodeling and Realtor, the red–hot U.S. housing market of recent years boosted remodeling activity, and the “recoup value” of these projects — that is, the amount by which they raised the total value of the home — often paid for themselves in terms of value added. More recently, average recoup values have declined somewhat, tracking the general slowdown in housing sales. Even so, current recoup values represent a major discount off the cost of remodeling.
But not all improvements are equally valuable. The 2006 Cost vs. Value Report indicates that for the West South Central Region, including Texas, Louisiana, Oklahoma and Arkansas, midrange bathroom remodeling projects produced the greatest returns, averaging 86.6% of their cost in value added.
Other projects have far lower paybacks. In the 2006 report, for instance, sunroom additions found little favor with West South Central homebuyers, paying back an average of just 63.2% of the job cost.
“You can never go wrong with [improvements to] kitchens and bathrooms,” said Matt Malone, an Austin–based realtor affiliated with Realty World. “That’s bomb–proof.” Malone has also seen growing interest in outdoor living areas that offer features such as built–in grills and fireplaces.
By contrast, “pools are iffy, because you decrease the number of potential buyers for the property,” said Malone.
But of course, home improvements aren’t just about resale value. “The home is a special place, a sacred place for many Texans, and most do these projects not to increase their return on investment, but for quality–of–life issues,” said John Gormley, vice president of the Texas Association of Realtors. “If they want that new kitchen or swimming pool, most Texans will do it simply because it will improve their enjoyment of their home.” FN