It's Payback Time

Remodeling magazine’s annual "Cost vs. Value Report" shows exterior and replacement projects bring the biggest return.

ADAPTED FROM REMODELING MAGAZINE

Home rehabbers who are considering a move in the not-too-distant future should focus mostly on exterior upgrades. That’s the message from REALTORS® who participated in Remodeling magazine’s 20th annual "Cost vs. Value Report", done in cooperation with REALTOR® Magazine.

REALTORS® in 65 markets were given construction specs and costs on 29 upscale and midrange projects and asked to estimate the percentage return at resale.

Of projects that saw national cost recovery rates of more than 80 percent in 2007, only one — a minor kitchen remodel, with 83 percent of cost recovered — was a strictly interior job. The others were an upscale siding replacement using fiber cement materials (88.1 percent), a wood deck addition (85.4 percent), midrange vinyl siding replacement (83.2 percent), and upscale vinyl and midrange wood window replacements (81 percent and 81.2 percent, respectively).

On most projects, the value of remodeling trended down in 2007 compared with 2006. No project exceeded an 88 percent return. The likely culprits for the year-to-year drop: rising remodeling costs and slowing home appreciation brought on by the lackluster housing market in many areas.

The story was somewhat different in the Pacific region, however, where REALTORS® estimated cost recovery of more than 100 percent for six projects: a wood deck addition, a minor kitchen remodel, fiber-cement siding replacement, wood window replacement, and an upscale wood and vinyl window replacement.

Nationally, projects at the bottom of the cost-recovery ladder included home office remodels (57 percent), installing a back-up power generator (58 percent), and adding a mid-range sunroom (59.1 percent).

Put Costs and Values in Context

Looked at over a number of years, some projects appear to recoup considerably less than others. Home office remodels, for instance, have been at or near the bottom of the national averages since 2005 when the project was added to the survey. People investing in a home office typically do so to fill a specific need, such as to start a home-based business or telecommute. A prospective buyer with different space needs won’t see the value, regardless of the cost.

On the other hand, since minor kitchen remodels were added to the report in 2004, they’ve consistently ranked among the highest-value projects, according to practitioners surveyed.

When looking at cost estimates for individual projects, remember that averaging tends to have a leveling effect on job cost data. Also, seemingly small differences in project size and scope, or in the quality of finishes, can dramatically affect final project cost.

It’s also important to consider whether a remodeled space reduces the perceived number of rooms or available square footage. For example, carving a half-bath out of unused storage space under a staircase is an obvious gain in usable space. But converting an existing bedroom into a master bath, while a positive development in many respects, may reduce the number of bedrooms below the minimum expectation of some prospective buyers.

Similarly, the cost recouped on a given remodeling project depends on a wide variety of factors. These include the condition of the rest of a house, the value of similar homes nearby, and the rate at which property values are changing in the surrounding area. A home’s urban, suburban, or rural setting also affects its value, as does the availability and cost of new and existing homes in the immediate vicinity.

Finally, there can be wide regional swings. A midrange bathroom remodel recovers 85 percent of its cost in the South but only 63 percent in the Midwest.

Where resale value is a major factor in a home owner’s decision to remodel, the best course of action is to consult with a local remodeler about construction cost — and look closely at the comps and market conditions.

Survey Changes Affect Results

Some of the volatility in year-to-year comparisons results from two changes to the survey itself. The first is a general overhaul of the project descriptions and cost estimates, begun in 2006 and completed this year. These changes resulted in cost increases larger than would have resulted simply from rising labor and material costs, notably for major kitchen remodels, bath projects, and siding replacements. The construction costs are more accurate than in previous years, but they combine with slower home appreciation to create a lower percentage in the value column.

The second change began in 2002 with the introduction of higher-priced upscale versions of some projects. Although the range of costs thus created made the report more useful, it impacted year-over-year comparisons. While the trend of core projects turned down in 2003, the trend for all projects peaked in 2005 before turning downward.

As we continue to survey all 29 projects, we expect trend data to become more reliable. Until then, the most useful comparisons are of national data for single projects and of regional cost and value differences.

About the Survey

Construction cost estimates for the 2007 Cost vs. Value Report come from HomeTech Information Systems, a remodeling estimating software company based in Bethesda, Md., which regularly collects current cost information from a nationwide network of remodeling contractors and suppliers and applies an adjustment factor to account for regional pricing variations. Construction cost figures include labor, material, subtrades, and contractor overhead and profit.

Over the last two years, project specifications and estimating templates have been updated to clarify dimensions, modify material specs, and ensure that special requirements such as laying tile on the diagonal were properly accounted for. In some cases, this process resulted in prices that are higher than what would be expected from price inflation alone. Although such pricing adjustments affect year-over-year price comparisons, all of the values in the 2007 Cost vs. Value Report are based on the refreshed prices, which we consider to be more accurate than before.

For each project, the value data are aggregated from estimates provided by members of the NATIONAL ASSOCIATION OF REALTORS®. E-mail surveys containing project descriptions, construction costs, and median home price data for each city were sent to more than 100,000 appraisers, sales associates, and brokers. Survey respondents were asked to use this information to estimate the value that the remodeling projects would add to the house at resale in the current market, assuming that the project was recently completed.

The survey took place over eight weeks in July and August 2007. The survey was administrated by Specpan, an Indianapolis-based market research company specializing in business-to-business Web-based surveys.

For the national averages, the confidence level is 95 percent +/–2 percent based on 2,770 survey respondents. This means that 95 percent of the time, national averages for this survey will fall within 2 percent of either side of the results of this year’s survey.
(From the December issue of REALTOR Magazine)


More Good News for South Carolina....

Pending home sales in June increased from the previous month in all four major regions, according to the National Association of REALTORS' (NAR) Pending Home Sales Index (PHSI). The PHSI in the South leads the rest of the country. (SCAR Update, August 8)

The National Association of Realtors expects membership rolls to decline this year for the first time in a decade, as a slumping housing market in some parts of the country extends its reach. But South Carolina is one of the states bucking the trend. (The Greenville News, August 22)

Although nationwide residential construction in July fell to the lowest level in more than a decade, the Greenville area saw much less of a decline, according to the HomeBuilders Association of Greenville. (The Greenville News, August 22)

South Carolina ranked near the bottom of foreclosure rankings at 40th last month with one foreclosure filing per 4,679 homes. (The State, August 22) Return to Welcome Page


Younger U.S. Families Investing in Second Houses
By JEFF D. OPDYKE
The Wall Street Journal
June 19, 2007

Retirement-home sales are growing - among buyers still decades away from retiring.

From New York's Catskill Mountains to Oregon's rocky coast, younger couples who might otherwise be focused on building a nest egg instead are buying a lakefront house or country cabin that they hope to one day use in retirement.

For these younger buyers, this isn't an extension of the real-estate investment bug that bit a few years ago and is now fading as home prices flag in many markets. And they're not throwing financial caution to the wind just because they want a second home.

Instead, they're crunching the numbers and making hard decisions about their personal finances. In some cases, they're receiving an inheritance or a stock grant and are choosing to invest in their future real-estate needs rather than the stock market.

In other cases, they're altering their expectations about how long they'll work and the kind of returns they'll earn on their nest egg in order to pursue an emotional investment.

No one knows how many younger buyers are out snapping up their retirement homes. But real estate agents and financial planners around the country say they're increasingly assisting younger buyers out spending $100,000 to $500,000 for a house to call home in retirement.

Partially at play is a cultural shift planners say they see among younger savers who aren't content to just accumulate assets to use in retirement. Instead, this younger generation wants to put some of its nest egg to work today as an investment in family.

A year ago, Daniel Merkle and Sandra Bauman of Glen Rock, N.J., took roughly 20 percent of their retirement assets - none of it coming from tax-deferred accounts like their IRAs or 401(k) plans - and bought a cottage on a hill with 60 feet of lake frontage in Athens, N.Y., in the Catskill Mountains.

"It was clear the money was better off in the index funds we owned," Merkle says. "But there are factors you can't see on a spreadsheet - like the time we get with our kids building memories there. We wanted to get in while it was affordable."

The trade-off is that the couple had to give up on the idea of retiring early. "But we realized you never know what is going to happen in 20 years, and it's better to enjoy it now," Mr. Merkle says.

Gregg Yaeger, a vice president at Chicago's Northern Trust Corp., says he has dealt with several younger clients doing this in recent years, including a 37-year-old client currently buying a retirement house on a lake in Michigan.

"He wants this place specifically to retire," Yaeger says, "but he also wants it now as a place to build a bank of memories with his kids."

The question many people face is how to afford the future today. After all, beyond the price of the house there is maintenance, insurance, taxes and other costs. Phillip Cook, a financial planner in Torrance, Calif., says he discourages his clients from pursuing this strategy because "most of the rationale is emotional, and financially I think that's a mistake.

"Do you really think you know where you want to live 25 or 35 years from now?"

Nevertheless, people who receive an inheritance or other cash infusion are often deciding to put that money into retirement real estate instead of stocks.

Others are pulling some of the nonretirement-plan money from their nest egg.

Either way, says Suzanne Krasna, a financial planner in Walnut Creek, Calif., the bottom line is to figure out if your income can support the additional liability of this house after you've met other obligations - such as building an emergency savings account, contributing to a child's educational savings and fully funding your retirement plan - and after accounting for your current lifestyle. Return to Welcome Page


Columbia Home Sales Still Strong
By KRISTY EPPLEY RUPON
The New York Times

The market might be adjusting after highly successful years in 2004 and 2005.

Home sales in some of the fastest-growing areas of Columbia rose for the first quarter of 2007, but homes are staying on the market longer.

Home sales in Columbia slid in May - a month when buying usually starts to peak.

While Columbia-area real estate agents see no need for panic, the dip in what's typically a stable market comes during a nationwide downturn.

The May numbers released by the S.C. Association of Realtors showed that in addition to a 4 percent drop in sales, Columbia homes stayed on the market a week longer than a year ago. Sale prices rose less than 1 percent.

The Columbia market is leveling off from higher-than-normal home sales in 2004 and 2005, said George Jameson, board president for the Greater Columbia Association of Realtors.

"It is not as hot as it was two years ago," said Jameson, sales vice president for Coldwell Banker's midtown office. Yet, "there still seems to be a good demand here."

Overall, statewide home sale averages continued to tumble last month because of the plummeting coastal market.

While May was weak, home sales in Columbia year-to-date are up nearly 4 percent.

"I've been in it 24 years here. We've always had a positive growth," said Tommy Carter, broker-in-charge for Russell & Jeffcoat Realtors Metro office. "It's always been slight ... but it's always been upward."

Last year was the second-best year for home sales on record in Columbia, said Mike Taylor, co-owner of Century 21 Bob Capes Realtors. This year is shaping up to come close to that record, he said.

Taylor attributes decreases in the market to:

o People worried over a "bubble that doesn't really exist" in the Midlands

o Interest rates rising and pushing costs beyond the reach of some prospective home buyers. Rates rose to an average of 6.74 percent last week, the highest in nearly a year, according to mortgage giant Freddie Mac.

o People who want to move here - particularly from Florida - who are having trouble selling their homes there.

The effects are being felt in many of Columbia's fastest-growing markets, which have seen houses sitting on the market longer.

During the first three months of this year, the number of days homes stayed on the market in Northeast Richland climbed to 87 compared with 79 last year. Lexington homes sat on the market for 87 days, up from 74, according to Multiple Listing Service statistics.

At the same time, total sales jumped 25 percent to 421 in Lexington and dipped 6 percent to 634 in Northeast Richland.

Jameson said Columbia still is "pretty darn fortunate ... compared to some other areas like the coast."

Sales in the Myrtle Beach area were down 42 percent for May, and homes there are staying on the market an average of 192 days. Beaufort and Charleston also saw double-digit declines in home sales and double-digit increases in number of days on the market.

Statewide, home sales decreased 13 percent for May and are down 7.6 percent for the year.

The median home price - the point at which half of the homes sold for more and half for less - is remaining steady at $146,000 for Columbia and $165,000 for the state.

Nationally, home builders' expectations for new home sales over the next six months plummeted to levels not seen since 1991, according to a survey by the National Association of Home Builders.

Experts predict a slow climb to a more normal level beginning early next year. Return to Welcome Page


Can't Sell Your Home? Maybe It's Priced Too Low
By DAVID LEONHARDT
July 11, 2007

Given that the real estate market is supposed to be in free fall, some strange things have been happening recently in Mill Valley.

It is one of the expensive suburbs of San Francisco just over the Golden Gate Bridge, and much of the housing market there seems to be doing just fine. One three-bedroom house sold for $1.4 million last month without ever being officially put on the market. The seller accepted a pre-emptive bid - $20,000 above the asking price - from somebody who had heard that the house was about to be listed for sale.

"The homes that are having a hard time selling are the average-priced homes," said Vanessa Justice, a real estate agent with Pacific Union GMAC in the Bay Area, where the median house price is about $750,000. For upper-end homes, she said, "it's actually pretty crazy right now."

It has been a while since real estate agents used the word "crazy" in a positive way, but Ms. Justice is onto something here: the high end of the market is surviving the slump much better than any other segment. Even as foreclosures keep rising and overall sales continue to plummet, more expensive homes have staged a bit of a comeback in recent months. They're spending less time languishing on the market than others, and their prices appear to be holding up better.

This split in the market helps explain why the sales of Manhattan apartments, some of the priciest homes in the country, have remained fairly strong. The national trend has gone largely unnoticed, though, because neither the federal government nor the National Association of Realtors - the main sources of housing data - report statistics for different price segments.

But after just about every home sale, documents must be filed with a local government office. A research firm called DataQuick Information Systems gathers these records, and a New York Times analysis of them shows that the story of today's real estate market is really two different stories.

In the Boston area, for instance, the number of homes selling for at least $1 million plummeted to 619 in the first five months of 2006, from 773 in the period in 2005, according to DataQuick. But the number jumped to 711 in the first five months of this year.

In the New York region, sales at the top end - that is, homes in the most expensive 5 percent of the market - have also been rising, while they have been falling in the middle and bottom of the market. The same is true in the San Jose, Calif.; Seattle; Denver; and Houston areas. In San Francisco, Los Angeles, Phoenix and Miami, high-end sales are down but not by nearly as much as sales in other price segments.

Separate statistics from the California Association of Realtors also show million-dollar-plus homes to be selling better than others in that state.

The high-end market is far from booming, to be sure. Many houses would still sell for less today than they would have a year ago. But the market has stayed strong enough to catch a lot of buyers and sellers off guard. They keep hearing about a real estate meltdown and then finding a different reality when they go to make a deal.

A three-bedroom apartment around the corner from the Guggenheim Museum, on 88th Street near Fifth Avenue, was recently put on the market for $2.8 million, and the first bid came in slightly lower than that. Ten days - and nine bids - later, the seller accepted an offer about $500,000 above the asking price.

In Brookline, Mass., near Coolidge Corner, a big Victorian house went on the market for $1.4 million this spring - just as it had in 2006, without selling. "I thought it was still overpriced," said Chobee Hoy, the seller's real estate agent. Yet the house ended up selling for about $30,000 more than the asking price.

There seem to be three main causes of the split in the market. The first is that affluent families continue to do better than others, thanks to healthy income gains and a rising stock market. "To some extent, it is the rich getting richer," Andrew LePage, an analyst at DataQuick, explained. "The folks who don't rely solely on a weekly or monthly paycheck seem to be doing better."

The upper end of the market has also been helped by an influx of well-off foreign investors whose buying power has grown with the recent decline of the dollar. Hard as this may be for an American to imagine, New York, San Francisco or Miami can now seem like a bargain, compared with London, Moscow or Sydney. Jason Haber, an agent with Prudential Douglas Elliman in Manhattan, said he had recently taught himself how to convert square feet into square meters - you divide by 10.8 - because of all of the international buyers traipsing through New York apartments.

Finally, both the recent rise in interest rates and the problems in the mortgage market have had a much bigger effect on low-income and middle-class buyers than affluent ones. It's become harder to get a subprime mortgage, while the uptick in interest rates this year has added about $100 to the monthly payment on an average fixed-rate 30-year mortgage.

As Mark Zandi, chief economist of Moody's Economy.com, summed up the market: "The low end is getting creamed. The middle is struggling. The high end is running on its own dynamic."

It's tempting to conclude, then, that the top of the housing market has somehow become bubble-proof. And some real estate agents will doubtless make this pitch to buyers who are on the fence. But it is almost certainly wrong.

In fact, the very top of the housing market - the sprawling vacation homes and 10,000-square-foot mansions - seems to be doing considerably worse than merely expensive homes. Ines Hegedus-Garcia, an agent in Miami, recently looked at sales volumes there and found the market for homes that cost $1.2 million to $2.5 million to be holding up decently. The situation was much worse for those priced above $2.5 million.

There are also a couple of areas, like Washington and San Diego, where the high end of the market, broadly defined, is already doing about as badly as everything else. So perhaps the recent comeback won't last long in other cities.

Remember, it's not as if the wealthy are immune to irrational exuberance. Just think back to the 1990s - or the 1920s. Any asset can end up becoming overvalued. Right now, though, there is a bit more of a rational explanation for home values at the high end of the market. Return to Welcome Page


To Help You Appreciate The Housing Market In Columbia, SC
For Parking Space, the Price Is Right at $225,000
By VIVIAN S. TOY
July 12, 2007

In Houston, $225,000 will buy a three-bedroom house with a game room, den, in-ground pool and hot tub.

In Manhattan, it will buy a parking space. No windows, no view. No walls.

While real estate in much of the country languishes, property in Manhattan continues to escalate in price, and that includes parking spaces. Some buyers do not even own cars, but grab the spaces as investments, renting them out to cover their costs.

Spaces are in such demand that there are waiting lists of buyers. Eight people are hoping for the chance to buy one of five private parking spaces for $225,000 in the basement of 246 West 17th Street, a 34-unit condo development scheduled for completion next January. The developer, meanwhile, is seeking city approval to add four more spots.

Parking in new developments is selling for twice what it was five years ago, said Jonathan Miller, an appraiser and president of Miller Samuel.

Although spaces in prime sections of Manhattan are the most expensive, even those in open lots and in garages in Brooklyn, Queens, Riverdale and Harlem are close to $50,000, although at least one new Brooklyn development is asking $125,000.

Scarcity figures big in the escalating prices. Mr. Miller estimated that less than 1 percent of all co-op and condominium buildings in the city have private garages. The city also limits how much parking new buildings below 96th Street can offer, requiring that no more than 20 percent of the units have spaces.

"It's a fairly rare amenity," Mr. Miller said. "And in the world of pet spas and on-site sommeliers, it's actually a pretty functional amenity."

In other densely packed cities where space and parking are at premium, parking spaces in condos also tend to trade at high prices. In Boston, they can sell for as much as $175,000, and they go for as much as $75,000 in Chicago. But in other cities, like Los Angeles and Dallas, most condos include parking in their prices.

For developers in New York, parking is the highest and best use for below-grade space and fetches about the same price per square foot as actual living space, which costs much more to develop. According to Miller Samuel, the average parking space costs $165,019, or $1,100 per square foot, close to the average apartment price of $1,107 per square foot. Those are averages, of course. A $200,000 parking space is about $1,333 per square foot.

If parking at the Onyx Chelsea, a new 52-unit condo at 28th Street and Eighth Avenue, is any indication, there is plenty of demand. The first two spots sold for $165,000, the third for $175,000 and the last two for $195,000. Each space will include about $50 in monthly maintenance costs. Still, there are three buyers on a waiting list.

Cynthia Habberstad is at the top of that list. She chose not to buy a spot when they were selling for $165,000, but changed her mind only to learn that all the spaces had been taken.

"At first, I was getting overwhelmed and didn't want to spend the money," Ms. Habberstad said. "I'm kicking myself now, believe me."

She and her three children, ages 7, 9 and 11, live on Long Island, but the children's modeling schedules bring them into the city at least twice a week, and the apartment they bought in the building will be a pied-à-terre.

"If we're coming in late from dinner or we have a lot of stuff in the car, do we really want to have to walk a few blocks to get home?" Ms. Habberstad said. "It all makes sense now that I don't have it."

Developers are well aware of the demand. "We're putting in parking in pretty much every development that we're working on," said Shaun Osher, the chief executive of Core Group Marketing, which represents 246 West 17th Street and about a dozen other new condo buildings.

In-building parking allows city dwellers with cars to replicate the suburban ideal where they can park, take their keys and walk right into their homes, Mr. Osher said.

At the Fifth Street Lofts in Long Island City, Queens, which are scheduled for completion at the end of the year, Jackie and Lee Freund bought an apartment and three garage spaces at $50,000 each, even though they own only one car.

"We bought three because we know the parking situation is bad now and its only going to get worse," Jackie Freund said.

The Freunds, who have a 2-year-old son, have lived in a nearby rental building for the last three years. After dealing with the hassles of parking on the street, they got a space in a nearby garage.

"We've had the car towed, and my sister had hers towed when she came to visit and parked on the wrong side of the street," she said. "They're crazy for towing around here since the tow pound is nearby."

The Freunds plan to sell one of their extra spots at the Fifth Street Lofts and rent out the other.

Buyers and brokers across the city are confident that prices will only go up as finding a parking space becomes more difficult. In fact, 40 parking garages or lots in the city have closed within the last nine months while only 23 new ones have opened, said Margot J. Tohn, publisher of "Park It! NYC 2007," a parking garage guide.

"It's not at a huge, huge scale, but we definitely are losing parking," Ms. Tohn said.

Tom Postilio, a broker for Core Group Marketing and the director of sales at 246 West 17th Street, said: "There are people looking for apartments who have the attitude, 'Love me, love my car.' And for them, if there's no place to park on the streets, it's practically a deal to get a parking spot for $225,000." Return to Welcome Page

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