Factors influencing hot seller’s market also fuel home improvement
Homeowners are finding reasons to fill Clark County’s remodelers’ workloads. Contractors specializing in home improvements large and small haven’t been left behind in the still-hot housing market.
Lower interest rates and increasing home values are fueling much of the improvements. In particular, homeowners with newly realized equity have taken advantage of low interest rates to refinance and invest in home improvement projects and entire renovations. Others are making improvements to further the value of their homes before making a sale, and with prices rising, some homeowners are seeing remodeling and new additions as economical alternatives to purchasing a new home.
It’s been a good ride, said Brian Kashas of Camas-based Kashas Construction, who says the rapid increase in home prices has spurred new business.
“A lot of it has to do with people choosing to stay in their current homes and make it the way they want it to be,” he said. “Real estate and the cost of moving have gotten so high.”
In addition to newly realized equity, strong job growth and Oregon residents moving to Clark County who buy homes and make improvements have contributed to the strong remodeling market.
Kashas said work tends to slow down in the winter months, but his company has two to three times as much work now versus this time last year.
Some homeowners are looking for just a kitchen or bathroom remodel, while others want an entire home renovation.
“It runs the gamut,” said Kashas. “We get inquires across the board.”
Matters of taste, not value
Remodelers say they are doing more major jobs than they have in the past.
“We are doing $100,000-plus projects more frequently,” said Kashas.
Dorman Holcomb, principal of Vancouver’s T Square Remodeling Inc., said the most popular job is the creation of a great room, which involves building additions or tearing out walls to combine the kitchen with the living-room area.
Kitchen and bathroom remodels are always popular, he said.
Remodelers find most homeowners make improvements to reflect personal taste, rather than to improve the value of their home.
Homeowners with short-term plans of staying in a home are much more sensitive to return on investment, said Holcomb. But those planning on staying for the long term base remodeling decisions on individual needs. Holcomb said his company more frequently is remodeling homes that have not yet been lived in.
Smaller improvements pay off
While some projects fare better than others in terms of investment, most don’t return the full cost of the project, professionals say.
“Kitchens and bathrooms are areas that can improve somewhat,” said Mike Lamb, Windermere Stellar Group associate broker. “But by and large it is not true.”
According to Remodeling Magazine’s 2005 Cost vs. Value Report, 102 percent of costs can be recovered on a midrange bathroom remodel, 99 percent of costs for a minor kitchen remodel and 83 percent for a family room addition.
Lamb recommends only minor repairs and cosmetic changes as the most cost effective improvements to boost a home’s value prior to selling.
“Paint up, fix up, clean up” are words to live by when preparing to sell a home, said Lamb. Lamb also lives by the $300-to-$2,000 rule. Failing to make a $300 repair will cost a homeowner $2,000 in negotiations.
The biggest mistakes people make, said Lamb, are over-improving and over-personalizing.
Location is the biggest determinate in the value of a home, said Lamb. Improvements made to a home may not pay off as much in less attractive neighborhoods. And idiosyncratic changes may create less interest when deciding to sell.
But Lamb said homeowners making changes for the long term to fit their needs shouldn’t be concerned. Many existing homeowners have lots with “elbow room” and don’t like the idea of living in a neighborhood with “two-story boxes so close to each other,” said Holcomb. He finds homeowners choose to add on to a house more often today, rather than deal with increasing home prices and land issues.
“Land is scarce and costs are high,” said Kashas. “If they can’t find a good location or lot size, they stay where they are.”
With the population boom in Clark County in the past 25 years, Kashas said more homes are reaching the remodeling age.
“Housing is aging in this area,” said Holcomb. “Housing stock built in the ‘70s and ‘80s is really prime.”
Kashas doesn’t expect a cooling housing market or rising interest rates to dampen the home improvement market significantly.
“I feel positive about it,” he said. “I see the likelihood of home values leveling off, but I don’t think they will retreat. There is still a lot of equity to apply to home remodels.”
Holcomb agrees, and has taken measures to control his company’s workload.
“I’m trying to handle the growth,” he said.
T Square Remodeling saw a 20 percent increase in 2004 and 10 percent increase in 2005. Though he said the company could do more, he would like to maintain growth at 10 percent in 2006.
It’s in the numbers
In the third quarter of 2005, cash-out refinancing activity slowed slightly but remained high as homeowners took advantage of still low rates to extract equity from their homes for improvements or other spending. Freddie Mac reported 72 percent of loans owned by the company that were refinanced resulted in new mortgages with loan amounts that were at least 5 percent higher than the original mortgage balances. That figure is down from 74 percent in the second quarter of 2005, but still higher than 64 percent in the first quarter of the year, which had been the highest since the fourth quarter of 2000.
Homeowners looking to make improvements may be trying to get ahead of rising rates. Freddie Mac predicts rates on a 30-year-fixed mortgage will reach 6.5 percent by the end of the year, up from the current 6.1 percent. The prime interest rate, which home equity credit lines are based on, is at 7.25 percent, up from 5.25 percent a year ago.
Harvard University’s Joint Center for Housing Studies reported home improvement spending slowed in 2005 to an increase of 4.3 percent, versus 2004 growth of nearly 20 percent. The center expects spending growth to remain in the low single digits.
Clark County figures paint a brighter picture, however. The county’s taxable retail sales in the third quarter of 2005 for building materials rose 26.2 percent to $78.5 million from a year ago, according to the Department of Revenue.