George and Vivienne Taylor loved their neighborhood, but with a growing family, were beginning to feel cramped in their almost 1,800-square-foot house.
Rather than move, they opted to spend almost $500,000 for a 3,000-square-foot expansion to their home in Chicago’s Beverly neighborhood in 2003. The back of the house was extended to add a newly expanded kitchen and a family room. The second floor grew from two bedrooms to three bedrooms, a laundry room, den, office and full bath. An additional third floor became a master suite.
“We knew we needed more space,” said Vivienne Taylor, who was pregnant with the couple’s third child when construction began. Her husband, a structural engineer, supervised the expansion and worked closely with the architect and Lem Construction, Chicago.
The couple “briefly” considered moving, but found the “market was so high” they decided to stay, Taylor said.
“We like our neighbors, have a huge lot, and we are right by the park and near the train,” said Taylor. The neighborhood is “very diverse. The public schools are terrific. It’s a great sense of community. There are lots of activities and it is rich in culture too. We like the landmark status of some of the houses and the ambience of the neighborhood.”
The Taylors aren’t alone. In an industry with a budget-minded, do-it-yourself image, high-ticket re-dos and high-income homeowners are leading a record remodeling boom, according to a new report from Harvard University’s Joint Center for Housing Studies.
Households with incomes of $120,000 spent $43 billion on remodeling, about 30 percent of the $138 billion spent on homeowner improvements in 2003, the last year for which figures are available.
Those high-income households have been responsible for 60 percent of the remodeling industry’s sales gains since 1995, said William Apgar, senior scholar at the Joint Center and one of the authors of the Harvard study. Buyers of “high value homes” worth $400,000 have been particularly important to the home remodeling industry, he said.
“Ten to 15 years ago if you wanted a nicer home you moved into a new house down the road,” said Kermit Baker, director of the Harvard program, which has studied remodeling for the last 10 years. “But all the closer locations (in cities that are economic centers) have been developed and people don’t want to commute 75 miles to work.”
Among their clients, location often is a major motivator for remodeling rather than moving, say Chicago-area contractors.
Jeffrey Samuels, president of Samuels Homes LLC, affiliate of Red Seal Development, Northbrook, is primarily a custom home builder, but his high-end remodeling is approaching 50 percent of his business.
“The building restrictions on the North Shore are getting more difficult, and customers find they can add on or remodel their own existing homes and get more space than if they built new,” he said.
His projects range from $500,000 to more than $1 million. In that price range, remodeling customers are coming to him for the same customization that he offers as a builder, he says.
Among the most common projects are updates or additions of a master bedroom suite, modernizing or enlarging kitchens, updating home entertainment areas and “downsizing” the great rooms with two-story ceilings that were so popular in the past.
“They want a more intimate dining experience. They don’t want to live as a family in that big impersonal space,” Samuels said. As a result, homeowners are renovating the cavernous spaces into rooms that feel cozier.
Michael Wentz of Trustway Homes in Pewaukee, Wis., said his firm branched into remodeling two years ago when the company opened the Stone & Bannister division. He said the company confines its remodeling efforts to “major projects like room additions,” and most projects cost $50,000 to $200,000.
Land is scarce and property prices are up in his market between Milwaukee and Madison, so a lot of people stay put and improve their homes rather than move or build, he said.
“I don’t think [remodeling] is as interest rate-sensitive as home building,” he said, one reason his company decided to get into the business. “If interest rates go up, people tend to stay put and remodel.”
Wentz estimates 80 percent of his customers pay cash. He added “a lot of these people are paying out of investments. They are liquidating a money market accounts” to pay for the home improvements.
He expects remodeling to be strong in 2005 and is aiming to do $1.5 million to $2 million in business, up from $300,000 in 2003, the first year the firm did remodeling.
Baby Boomers have been the backbone of home improvement and still account for more than half of all remodeling expenditures. But as Boomers age and the size of their households shrinks, there has been little slowdown in their spending.
The group as a whole spent $72 billions on house projects in 2002-03 when six in 10 Boomers homeowners completed an improvement project. That compares with $17 billion in 1995.
“I’m not done. My friends are not done,” joked the 58-year old Apgar, born in 1946 at the leading edge of the Baby Boom.
Still, remodelers and the home improvement industry depend on the patterns of younger consumers for its future. Apgar was upbeat about the outlook noting each generation is wealthier than the one preceding it.
Young people in their 30s, sometimes called Generation X, are moving rapidly into homeownership. There are 12.4 million people in this younger, more diverse group, which includes millions of foreign-born and minority households.
“Gen X-ers already rival Baby Boomers in per-household spending,” Apgar said. “They are doing large, complicated projects.”
Although anticipated mortgage rate hikes are likely to slow home sales and re-financing, the Harvard officials say they expect a rapid growth in home equity borrowing to finance remodeling in the year ahead. However, it is an unanswerable question how much equity is left for homeowners to borrow, they admitted.
The Harvard team was bullish about home improvement overall. The outlook for household growth is strong for the next decade, they noted. And even if housing sales slow and prices slow or fall, homeowners most likely will hunker down and hold their property, opening the door to both necessary and discretionary improvements.
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Paying off at resale
That new kitchen, deck addition or master bath could pay off when it’s time to sell–especially in the Chicago area, a new study suggests.
The 2004 Cost Vs. Value Report, recently released by Remodeling Magazine and the National Association of Realtors, compares the cost-to-construct for 18 common remodeling projects with the added value those projects bring at resale.
In Chicago, where home values rose by double digits in 2004, many renovations were porjected to return the cost of the project, plus some, at resale.
Of course, because selling a home depends on multiple factors, not every homeowner should expect a 100 percent return on investment with their remodeling project. A look at the estimated return of fix-ups in Chicago:
Siding replacement
Cost: $8,850
170.4 percent
Minor kitchen remodel
Cost: $17,313
135.5 percent
Window replacement
Cost: $10,968 (mid-range)
123.9 percent
Bathroom remodel
Cost: $12,236 (mid-range)
118.8 percent
Bathroom remodel
Cost: $31,008 (upscale)
117.3 percent
Major kitchen remodel
Cost: $48,249 (mid-range)
113.6 percent
Deck addition
Cost: $7,941
113.0 percent
Window replacement
Cost: $17,658
109.1 percent
Bathroom addition
Cost: $50,654 (upscale)
102.1 percent
Bathroom addition
Cost: $27,334 (mid-range)
101.4 percent
Major kitchen remodel
Cost: $83,987 (upscale)
101.3 percent
Attic bedroom
Cost: $45,075
101.3 percent
Master suite addition
Cost: $90,001 (mid-range)
100.5 percent
Master suite addition
Cost: $170,594 (upscale)
97.2 percent
Family room addition
Cost: $65,112
96.8 percent
Roof replacement
Cost: $16,887
90.7 percent
Basement remodel
Cost: $57,518
86.5 percent
Sunroom addition
Cost: $37,842
76.0 percent
Note: Resale percentages are based on the sale of a home in today’s dollars and do not reflect actual sales made on remodeling projects. Instead, they are based on the projections of National Assocation of Realtors members. The survey included 356 responses and has an error rate of plus or minus 5 to 10 percent.
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For a copy of the report, including project descriptions, go to www2.remodeling.hw.net/.
