More remodeling, less moving, and uncertainty

Another trend that is the result of the current housing market: fewer people are moving and more homeowners are remodeling what they already have.

Now, according to research, homeowners are eager to hold onto the ultra-low mortgage interest rates they were able to get after the crash, and they are leery about taking a chance on a move. Many also lack the financial wherewithal to upgrade to a larger, pricier home. They own houses that haven’t recovered enough of their value in the wake of the crash to generate the down payment needed to buy a new place.

The percentage of homeowners moving up to their next home is the lowest in 25 years, said Todd Tomalak, vice president of research for John Burns Real Estate Consulting. Instead of moving, people are deciding to make starter homes permanent and are expanding and repairing them for the long term, he said…

From 1987 to 2008, homebuyers stayed in their homes six years on average before selling, according to the National Association of Realtors. The number of years homeowners expected to stay in their homes started increasing during the housing plunge and has been at 15 years since 2010…

Last year, people spent about $320 billion on remodeling — a 5 percent increase over the previous year, Tomalak said. This year, they are expected to spend $350 billion — a 9 percent increase.

Interesting data yet there are some conflicting things going on here. This raises a few questions for me:

  1. If you aren’t moving soon, remodeling can make sense. At the same time, how does the remodeling square with homeowner’s interests in making money on their home? Many remodels do not recoup the money put into them – unless people are hoping that the tight market will keep housing values going up and up.
  2. Does the same animosity some have toward big box retailers like Walmart also carry over to Home Depot and similar stores? I know some things can vary tremendously from retailer to retailer – such as wages and benefits – but all big box stores have some similar effects including knocking out local businesses (who goes to the local hardware store for all their remodeling needs?) and contributing to an automobile culture with massive footprints on commercial stretches.
  3. On one hand, fewer people moving suggests the housing market is sluggish and this may not be good for the housing industry and the economy at large. On the other hand, people staying in the same house longer means they are more rooted in their communities (combats the critique of the soulless suburbs or the image of Americans just wanting to move up) and are avoiding senseless consumerism (just chewing up new house after new house). Is this an example where the consumer driven economy doesn’t really work in the long-run? (Or, maybe enough homeowners can be convinced that they need the newest item for their home – concrete countertops! wi-fi enabled refrigerators! – that the remodeling can pick up some of the slack.)

Remodeling dated and garish McMansions

Some buyers of McMansions do quite a bit to update the homes:

The towering (and disintegrating) stucco walls, pretentious interior columns, two-story great room, and four vinyl garage doors that greeted visitors didn’t do much to distinguish it from its neighbors.

“We knew it was, inherently, a version of a McMansion. So one of our challenges was: How do we bring a new identity to it?” said Seip, vice president of Chase Building Group, based in Doylestown.

As the region’s stock of oversize – but often under-designed – suburban tract houses ages into its teens and 20s, some homeowners are looking to reverse the gravest missteps and most ludicrous larks of prerecession developers. They’re ripping out never-used master-bath Jacuzzis, lowering space-wasting cathedral ceilings and replacing builder-grade finishes with more personalized selections…

“If you have a house that was cheaply built with bad materials, with a short-term development mentality . . . it will always plague whatever you do,” he said. “We can solve for a badly planned house. But we can’t change a badly made house into a well-made house.”

This is one answer to the question of what will happen to McMansions several decades later: some of them will be remodeled to fit new trends. New owners often want the latest features and want to avoid the appearance of dated finishes.

There are several possible responses to this:

1. Not all McMansions are likely to be significantly remodeled. What happens to them and how many will there be?

2. The last quote in the passage above is interesting: the changes can only go so far to fix earlier features of the house.

3. Critics of McMansions might suggest no one should buy these homes in the first place but it is interesting to note that there are homebuyers who think McMansions can be “fixed” or changed to better meet their needs. Even if significant remodeling is desired, is square footage still a key drawing point of these homes?

4. The stucco McMansion finishes in Pennsylvania seem to draw quite a bit of attention. Are there no stucco McMansions further in the Northeast? Perhaps builders got a little carried away with this exterior finish in an area that has more roots in northern European architecture.

Zillow starts estimating remodeling costs

Zillow is already known for estimating housing values but just last week they started offering another estimation: what it will cost to remodel.

On Tuesday, Zillow waded into the world of remodeling, by pairing its database of photos of pretty rooms (from its for-sale listings) with the tool that seems to drive most aspects of American life these days, the algorithm.

Thus, the company is attempting to answer the obvious question that dogs glossy magazine layouts and cable TV decorating shows: How much would it cost to do a room like that, anyway?

Remodeling costs are notoriously difficult to generalize about with the public, for a number of reasons…

Undeterred by all that, the website has rolled out Zillow Digs, which has launched with about 6,500 photos of kitchens and master baths. Beyond mere real estate eye candy, though, it also has brought in a team of contractors to offer estimates of the cost of each room’s appliances, finishing materials, labor, etc.

As the article notes, this could be quite a money maker with the number of Americans who remodel their homes. It seems like the algorithm could benefit from getting some data after the remodeling takes place; perhaps a later appraisal or an estimate based on a later sales price. Of course, this would require waiting some time after the remodeling takes place and perhaps there are not enough cases of remodeling within a certain geographic area to make a good estimate.

In the end, it will be interesting to see how many people make use of this new site. Additionally, how many will be willing to make financial decisions based on the estimates from the site?