Monday, December 28, 2009
Remodeling now could save homeowners a bundle
By Ann Robinson and Annie Schwemmer
Notice we did not say a "fond" farewell. Frankly, we are glad to see it go.
It seems everyone has struggled through, both professionally and personally. Here's hoping for better things in 2010!
We know many of your remodeling plans have been placed on the proverbial back burner this past year.
Remodeling is costly, and who in their right mind would consider undertaking a major project when people are still losing jobs, salaries have been cut and contracts you have had for years are in question?
That is what we thought for the first half of 2009, but by the middle of the year we began to see that there is opportunity hiding in the ruins.
So, the question is, "Should I wait for the economy to rebound before I remodel?" Some who have been hit the hardest, of course, may have no option.
Others, however, need to at least stop and think about taking advantage of the situation, rather than just being content to sit by as a victim of forces beyond our control.
There are several great advantages about remodeling now before the recovery is complete.
1. Construction costs during the past decade have risen on average about 10 percent per year. In 2009, however, the slowdown in the global economy and new home construction have driven costs down.
Construction costs are currently at a 10 percent to 15 percent discount. For instance, a project that would have normally cost $200,000 can now be built for about $25,000 less.
When the economy rebounds and gets back to the 10 percent yearly increase in construction costs, waiting two years to do the same $200,000 project will cost about $42,000 more.
Remodeling now is significantly less expensive than waiting.
2. Mortgage rates are lower than most of us can ever remember. During most of the 1990s, interest rates on a conventional 30-year loan averaged just more than 8 percent, a far higher rate than what is being offered now.
Waiting to remodel until the economy has rebounded will also likely mean that the interest rates will have increased as well. Just a 1 percent increase in a 30-year mortgage rate for that $200,000 project will add $45,000 in interest to the total cost of the loan.
A 2 percent increase will add $93,000. The risk of waiting to get a loan until the rates have increased will seriously impact your project budget.
3. Real estate has long been valued as a good hedge against inflation.
Appraised values are currently very low, but remember the adage, "Buy low, sell high."
Work done now will increase the existing value of your home, but as inflation increases with the upswing in the economy, you will regain the appreciated value you had lost on the original home, and capture the increase in value on the improvements you have made while initial costs were low. If you think that inflation will rise, don't wait to invest in your own real estate.
4. Remember that the interest paid on a mortgage is tax deductible.
5. Resale value is another consideration. When it comes time to sell your home, you will have a more beautiful, functional, energy efficient product that will sell faster and for more than homes that have not been upgraded.
6. Should you save up for a remodeling project? We all hope and expect that the economy will indeed rebound in some fashion over the next year or two.
As life returns more to normal patterns and expectations, the conditions discussed above will change. With the construction cost of your project increasing 10 percent a year, rising mortgage rates possibly adding tens of thousands of dollars to your loan, and the risk of inflation reducing the value of your savings, it is likely that you will get significantly more remodel for your money now.
Finally, there is a result we can't put a dollar value on: Although your remodel will increase the value of your home and will be a wise financial investment, perhaps the most important result will be the investment you will be making in the quality of your life.
Having sufficient storage space results in the ability to keep your home (and your sanity) orderly and calm. Sufficient gathering space means your home can be a place where your children and their friends will feel comfortable hanging out, and that you can gather family and friends to make the memories that see us through when bad years do come along.
Don't summarily reject the idea of remodeling now; this may be the best time to change the rest of your life for the better. Here's to a better 2010 for all of us! As always, we welcome your home architect design questions at email@example.com.