Remodeling's great -but maybe you don't need to do it up big

CHICAGO - Homeowners interested in getting the biggest bang for their remodeling buck might want to shelve the idea of full-blown room remodels and instead opt for more practical replacement projects that reduce home-maintenance needs, increase energy efficiency or improve curb appeal, according to a report released this month.

Remodeling magazine's annual Cost vs. Value Report found that seven of the top 11 projects that paid off the most at resale were replacement projects, said Sal Alfano, editorial director for the magazine. That includes window and siding replacements.

Also, minor remodels of rooms are paying off more than expansive room improvements, according to the 2007 report. The report compares construction costs for common remodeling projects against the share of those costs recovered at resale, with projects broken down into "midrange" and "upscale" categories. National, regional and city data can be viewed at the magazine's Web site, costvalue.remodelingmagazine.com/index.html

This year, returns on remodeling projects are looking more modest - and more normal - than in years when the remodeling market was "white hot," Alfano said.

"The way I see it, we're getting back to normal here," he said.

From 2004 through 2006, some projects paid back returns between 90 percent and 100 percent of their costs - and sometimes even more, prompting some improvements to be worth more at resale than the homeowner actually paid, he said. That was due to a rapid appreciation of housing prices as demand for housing was strong.

In fact, it wasn't uncommon to hear stories of people doing substantial improvements merely for the payoff at resale, said Kermit Baker, director of the Remodeling Futures Program at Harvard University's Joint Center for Housing Studies.

Today, however, there's been a shift to "do the things that make sense," Baker said.

Projects that are paying off the most in this year's report include:

* A midrange wood window replacement, which recovers an average 81.2 percent of the cost at resale;

* A midrange siding replacement, which recovers 83.2 percent of the cost at resale;

* An upscale fiber-cement siding replacement, which recovers 88.1 percent of its cost.

In contrast, homeowners recover on average 57 percent of a midrange home-office remodel and 59.1 percent of a midrange sunroom addition upon the sale of the home.

Scaled-back improvements also pay off: A midrange major kitchen remodel will recover 78.1 percent of its cost, but a minor kitchen remodel will recover 83 percent of its cost, according to the report. An upscale major kitchen remodel pays back 74.1 percent at resale.

The Cost vs. Value Report isn't the only evidence of a changing remodeling market.

Homeowner spending on home-improvement projects is on track to decline for the first time since late 2003, according to Harvard University's Joint Center for Housing Studies. Overall, remodeling spending in 2007 is projected to be 2.3 percent lower than 2006. Remodeling won't likely turn around until new-home building hits bottom, Baker said.

While remodeling is slowing on a national basis, that doesn't mean that all parts of the country are experiencing the same sluggishness. As in all matters real estate, conditions are often individual to the particular area.

In the Cost vs. Value Report, for example, the average amount that a homeowner can recover for a minor kitchen remodel in the Pacific region is 103.5 percent, reflecting the continued strength of some housing markets such as Seattle, Alfano said. Nationally, the return on that project is 83 percent, he said.

In weaker housing markets, remodeling might be on the wane as homebuyers come across reduced prices or concessions for new homes on the market, he added. That might prompt some homeowners to buy new rather than remodel their current home.

Dean Herriges, a remodeler in Mukwonago, Wis., said that high-end remodeling hasn't really slowed in his market for people who plan to stay put for several years and are able to finance most of the project without tapping their equity.

In fact, in areas where remodeling is slowing, those who are interested in taking on a project might have a lot more luck getting a contractor on the phone - a change from recent years, Baker said.

There also could be new contractors to choose from, as some of the new-home builders try to move into remodeling, Alfano said.

But it's important to choose a contractor carefully, Alfano said, since remodeling is a very different process from homebuilding. In fact, the differences - including the challenge of matching existing materials - sometimes push homebuilders back out of the business after a stint.

"What we typically find," he said, "is that new-home builders who move into a remodeling market on a temporary basis hang in there for 18 months, and give it up or go back to new construction." *