Harvard Sees Flat Times for Remodeling

Back from the Fall meeting of the Joint Center for Housing Studies at Harvard, where the camera battery was dead and the news was somewhat downbeat.
Home remodeling is going to go from strong growth to little or no growth over the next few quarters. The group projects a 2.3% decline in remodeling spending in the fourth quarter of this year from the same quarter in 2006, with a further year-to-year decline of 2.5% in the first quarter of 2008, and another 4.2% drop in the second quarter of next year.
The growth in remodeling spending began to ease in the third quarter of last year, as households began to see better value in more moderately priced remodeling projects. A joint study by Remodeling magazine and the National Association of the Remodeling Industry found that mid-priced improvements and replacements have had a better payback recently than more expensive upscale projects. During 2007, upscale kitchen remodeling jobs are returning 74% of their cost as increased home value, versus 78% for mid-priced kitchens. Mid-price bath remodeling jobs are also returning 78% in cost vs. value, versus 68% for upscale bath remodeling jobs.
Among danger signs for home remodeling: the broader residential downturn shows no sign of reversing. Home sales are declining, and home prices are falling in many markets. Homeowners are taking less equity out of their homes; the amount of equity cashed out nationwide, which had driven much of the remodeling surge in recent years, has dropped from $101 billion in the second quarter of 2006 to just $46 billion in the fourth quarter of this year, according to Freddie Mac.