Instead of moving up, Kathleen and Michel Rege of San Jose, Calif., built out their 900-square-foot $205,000 home.
A trim and carpentry contractor, Michel Rege put in $35,000 worth of upgrades: a gourmet kitchen, a new bath, lots of lush backyard landscaping and plenty of high-end finishes. Plus, the couple upgraded the plumbing and other systems. And they plan to add another story to what is now a 1,400-square-foot home valued at about $235,000.
To them, it doesn’t matter that the $35,000 probably won’t give them an equal return in value unless their neighbors likewise improve their homes.
“We thought about paying for a new house, but we wouldn’t get two-thirds of what we have now. Plus, we’d probably have to upgrade the kitchen anyway,” says Kathleen Rege.
More and more homeowners have discovered hammers and nails can beat back the high cost of housing, and the trend is creating a record home-improvement boom in Santa Clara County.
During the first six months of this year, homeowners took out permits for improvements valued at almost $97.5 million, according to the Burbank-based Construction Industry Research Board. The board has tracked permits since 1988, and the previous record for the first six months of a year was $96 million in 1992.
“There’s a Porta Potti every fourth house,” says Clayton Nelson, president of the National Association of the Remodeling Industry-San Jose.
Contractors say homeowners are scheduling everything from bathroom remodeling jobs to complete second-story additions. Master suites, bathroom additions and remodeled kitchens remain the most popular home improvements.
“My business is up 100 percent, and every builder in our association is booked. We are saying, `Can you wait until April or May?’ ” said Nelson, owner of Nelson & Associates in Los Gatos.
There are three primary reasons for the boom in home improvements.
– It’s cheaper to improve than it is to move. That’s especially true when you have special lifestyles. The Reges new square-footage is mostly devoted to an upscale kitchen where they can enjoy their culinary hobbies as well as entertain friends.
“The old patterns of trade up, trade up, trade up are being traded for a pattern of people finding neighborhoods they like and staying put,” says Bill Crosby, editorial director of Palo Alto-based ImproveNet, a Web site that provides referrals to contractors and other home-improvement help.
– There’s lots of home equity out there. Apparently, some of the inventory shortage in the hot Santa Clara County housing market can be credited in part to homeowners who have decided to put their equity back where they got it.
“In 1994, we were cleaning gutters and putting in deadbolts and happy to do it. In 1997, the average job size is up to $60,000. It was $40,000 last year and $30,000 the year before. I think we are on a tsunami wave,” says Iris Harrell, owner of Harrell Remodeling Inc. in Menlo Park.
– Additions add value. A major kitchen remodeling effort can boost the value of a home by 127 percent of the cost of the job in the nearby San Francisco market, according to Remodeling Magazine’s 1996-1997 Cost vs. Value Report.
“In a hot market, you can turn it around, no problem,” Harrell says.
That’s a switch from real estate’s recessionary days in 1990 and 1991, when a $50,000 job often wouldn’t add a penny to the value of many homes. Today, according to Remodeling Magazine, the returned value could equal from 54 percent for replaced siding to 144 percent for a bathroom addition.
Of course, the magazine’s values aren’t absolutes.
Over-improve–create a home vastly superior to those in the surrounding neighborhood–and you aren’t likely to realize as much of a return. Instead, experts advise, add home improvements that bring your home up to the neighborhood’s standards.
Home improvements that prove most valuable are those that reduce what Forrest Linebarger calls “functional obsolescence.”
Says Linebarger, president of the Contractors Organization for Professional Standards in Palo Alto: “You have a home with two bedrooms and one bath. That’s too small for our lifestyles today. Those homes would benefit most from an addition of a master bath and a master bedroom.”
