Value added: in markets across the country, remodeling projects are a solid investment - Feature

Building Products, Jan-Feb, 2004 by Sal Alfano

PROJECT DESCRIPTION

MID-RANGE

Update an outmoded 200-square-foot kitchen with design and installation of a functional layout of new cabinets, laminate countertops, and standard double-tub stainless steel sink with standard single-lever faucet. Include energy-efficient wall oven, cooktop, ventilation system, built-in microwave, dishwasher, garbage disposer, and custom lighting. Add new resilient floor. Finish with painted wails, trim, and ceiling. Include 30 linear feet of semi-custom wood cabinets, including a 3-by-5-foot island.

UPSCALE

Update outmoded 200-square-foot kitchen with 30 linear feet of custom cherry cabinets and stone countertops with imported ceramic tile backsplash. Include built-in refrigerator, cooktop, and 36-inch commercial-grade range and vent hood; built-in warming drawer; trash compactor; and built-in combination microwave and convection oven. Install highend undermount sink with designer faucets and built-in water filtration system. Add new general and task lighting, including low-voltage undercabinet lights. Install cork flooring, cherry trim.

A Few Notes on Cost Recovery

Kermit Baker, senior research fellow at Harvard's Joint Center for Housing Studies, offers three key observations about the 2003 Cost vs. Value Report.

1. Cost recovery rates for home improvement projects remain high. Despite the fact that growth in spending on home improvements has been slowing nationally for most of 2003, cost recovery rates have been accelerating. Across all projects covered in this study, the average cost recouped was 86.40/0. For virtually every project, this was higher than in 2002. This probably reflects improvement in the economy and in the sense that incomes will continue to increase over the next few years.

2. Low-priced projects are exhibiting higher cost recovery rates than high-priced jobs. During a recession and in the early stages of a recovery, it is typical that the upper end of a market suffers more than the lower. High-priced projects tend to be more discretionary, and households often want to wait for the economy to improve to undertake these expenditures.

3. Markets with high house price appreciations report higher-than-average cost recovery. In markets where house prices are growing rapidly, local economies are generally doing better than the national average. Homeowners are more inclined to spend on their homes, having more equity to undertake the improvements and wanting to protect their housing investment. In metropolitan areas that were in the top 50 nationally in terms of house price appreciations between mid-2002 and mid-2003, the cost recouped was much higher than the Report average of 86.4%. In these areas (including, alphabetically, Los Angeles, Miami, New York, Philadelphia, Providence, Sacramento, San Diego, and Washington, D.C.), the average cost recouped was 109%. In metropolitan areas that were in the bottom 50 nationally in terms of house price appreciation (including, alphabetically, Cincinnati, Cleveland, Dallas, Denver, Detroit, Indianapolis, Salt Lake City, and Seattle), cost recovery across all projects in the Report averaged 65% or less for every market except Seattle.