Value of home remodeling projects fall in U.S.

WASHINGTON Thu Nov 10, 2011 1:00am EST

WASHINGTON Nov 10 (Reuters) - Thinking of a home renovation? Smaller might be better. Adding a sweet sunroom or luxe master suite sounds great, but don't expect to recover the costs anytime soon.

On average, U.S. homeowners who made home improvements in 2011 only picked up 58 cents in home equity on their remodeling dollar, according to the Cost versus Value survey released on Thursday by Remodeling Magazine. That's down sharply from the 2005 peak, when a new project immediately earned back 76 percent of its cost in higher home prices.

Homeowners who do less costly replacement projects do slightly better at recouping their costs than do those who spend big bucks on additions and new construction, with projects like replacement roofs and front doors earning 64 percent of their costs back in resale value. Remodeling projects earn back 57 percent, on average.

"The numbers are telling us that price is becoming a more and more important determining factor," said Sal Alfano, editorial director for Remodeling Magazine. "People are doing the things they have to do, rather than the more discretionary projects."

The average home improvement project cost $44,734 in 2011; that's down slightly from the $45,593 figure for last year. But resale values fell more, producing a 3 percent decline in the cost-value ratio.

The good news for homeowners is that all of those projects continue to get more affordable, as contractors keep cutting their prices to stay busy during the ongoing housing slump.

"There is so little new construction," Alfano said. "When commercial and new construction drop out of the picture, that leaves remodeling. The competition is there and they are sharpening their pencils." Prices for materials have remained pretty constant, he said.

Alfano told Reuters that he thinks the slump in home remodeling might be bottoming out. "We think it might start to pick up at the end of 2012, and 2013 is where we are expecting a much stronger growth rate."

The most popular projects tend to be ones that are more easily affordable, like replacing a garage door or replacing windows with more energy-efficient ones, said Alfano. Also popular are projects that add space without increasing the footprint of a house.

The project with the highest cost-to-value ratio on the list for 2011 was a mid-range replacement of the front door (with, say, a 20-gauge steel door). That cost an average of $1,238 and raised the average sales price of a home by $903, or 73 percent of the project's initial cost. But homeowners who upgraded their front door to an upscale fiberglass door spent more -- $3,536 -- yet saw, on average, an increase in home value of only $1,990, or 56.3 percent.

Another project with a relatively high cost-to-value ratio was adding an attic bedroom. Across the U.S., the average cost for that project was $50,148, but it added $36,346 to the average selling price of a house, allowing the homeowner to recoup an average 72.5 percent of the project's cost. Perhaps, Alfano suggested, that was because there is greater emphasis on multi-generational living, and people are seeking additional bedrooms to house their elderly parents or their returning adult children.

Replacing cabinet doors, spiffing up the hardware and putting in new appliances costs an average of $19,588 and raises home values by $14,120, or 72.1 percent, according to the survey.

Upscale kitchen remodeling is less rewarding, however. It cost an average of $110,938 to do a full-fledged upscale new kitchen, but that only raised home values by about $63,731 or 57.4 percent.

What about those sought-after man caves? A mid-range basement remodel costs $63,378 on average, and raised a home's value by 66.8 percent, or $42,228, in 2011, the survey found. And decks remained pretty popular; adding a wood deck cost an average of $10,350, but raised home resale values by 70.1 percent, or $7,259.

Of course, homeowners usually don't go through the hassle and the dust of a major renovation project just to sell their home, and if they're trying to decide whether to do a big project, the resale value shouldn't be the determining factor of a project, Alfano said..

Families should decide how long they want to stay in the home and whether the new project will improve their lives enough to justify the expense. For example, if it's going to cost an average of $83,118 to add a basic family room, and the resell value of that project is just 60.2 percent or $50,004, that means they can expect to spend $33,114 that they will never recoup on that family room. If they think they are going to stay in the home for 10 years, they can think in terms of whether or not $3,311 is an affordable and reasonable amount to spend every year for the pleasures of the extra space.

Put that way, it almost makes the spa room addition seem sensible. (Editing by Beth Gladstone and Carol Bishopric)