Home Remodeling: Investment Cost vs Return Value
A Soft Real Estate Market and Tight Credit Affect Home Improvement
Jan 4, 2009
The conventional wisdom says that bathroom and kitchen remodeling reaps the highest ROI (Return On Investment). However, this can change on a year to year basis depending on several factors.
When allocating the home improvement money as tax refund season looms and another economic stimulus package is discussed, it's important to stay current.
Factors Affecting Home Equity on Remodels
- Emerging energy-efficient technology
- Sustainable, green building products
- Economic environment
- Seasonal/availability prices of construction materials (for example, a few years ago the price of concrete spiked while China was experiencing a construction surge.)
- Time of the year (remodeling contractor fees can vary; outdoor projects in the winter vs indoor projects during the summer, etc.)
- The cost of electricity, natural gas, and heating oil
The Current Remodeling Cost vs Recoup Value Statistics
Remodeling magazine keeps up with home improvement cost/return statistics. The national average presented is generated from US regional data. What does this mean if the home is outside the US? It means nothing is nailed down, but due to today's global economy, general economic trends may be able to be extrapolated.
Their 2008-2009 national averages report reveals that the ROI on almost all projects is down from 2007. It may be speculated that this may be due to the slumping and uncertain real estate market, leading to uncertainty. Only three remodeling projects are trending up:
- Bathroom remodel. The old stand-by maintains its importance. Why? Perhaps because it remains the most personal room in the home and the fixtures can be very cost-intensive per square foot. The average cost of the bath remodel is $51,455; the resale value is $36,400; and the recoup value is 70.7%. Yes, resale is lower than investment, but recall that this is today's cost recoup data relative to 2007.
- Deck addition using Trex or other composite deck materials. This may reflect the tendency to spend more family leisure and entertaining time at home (the hip, new term for this is “staycations”) rather than taking vacations and traveling during tough economic times with uncertain fuel costs. The average cost comes in at $37,498; the resale value is $23,706; and the recoup is a healthy 63.2%. Once again, this percentage is up from the percentage in 2007.
- Siding replacement using foam backed vinyl. The fact that foam backed vinyl siding (which means added insulation) went up while cement fiber siding (such as Hardi products) went down may indicate that the trend is that energy savings are trumping durability. The vinyl statistics are: average cost is $12,528; resale is $10,074; and recoup is 80.4%.
What's in the Future for Remodeling Trends?
Currently, more focus is on exterior rather than interior projects. With more homeowners electing to sit tight, this may be a hedge against both high and uncertain energy costs.
With the home resale market in a slump, homeowners may be more focused on lowering utility bills and not moving rather than banking on ROI.
