Trends in Home Renovations for the New Decade

November 26, 2015

 

The American Homeowner Foundation estimated in a 2009 survey that as a rule of thumb the cost of moving is approximately 10% of the value of the current home one already inhabits. This statistic is another variable to consider for homeowners facing mostly still slumping real-estate prices and an uncertain economic climate this year.  There are few homeowners who are not looking for ways to save money on energy.  The advent of a new, “greener” America has also created a bevy of federal government-sponsored financial incentives to boost green energy creation and energy conservation.  Policymakers on both sides of the aisle in White House and Congress are clearly on board to speed the transition to a low-carbon economy.

 

For those addicted to reality TV, it should come as no big surprise that conventional wisdom suggests that one of the best renovations in terms of return on investment (ROI) if not the top one, was minor kitchen renovations.  This obvious face-lift, however, is closely followed in terms of ROI by an equally obvious if not as sexy installation of external siding (estimated to return 92.9% and 92.8% respectively according to a survey by an industry magazine in 2007).  Despite the fact that this comprehensive survey was conducted at the height of the real-estate boom, new incentives, particularly in the energy conservation and production space, easily make up for the change in the overall real-estate climate.  As a result, it remains the most recent nationally published benchmark as well as a good reference tool to estimate the viability of most projects.

 

Bathroom renovations and additions also rank high on the list.  Properties with more than one bathroom tend to sell faster than those with a solo water closet, and for more money.   While the market for overall real-estate is still trying to find a footing nationally, every advantage helps.  An investment of $10,000, considered a mid-range bathroom renovation project, returned 90.1% in 2014 even without other tax incentives now available.  Factor in the new incentives slotted for energy and water conservation and in some cases, production (where energy installs such as a solar energy generating installation of any kind are taken in concert with the upgrade), and the increased return, not to mention ongoing reduction in operating costs, creates a much larger incentive to embark on such projects.  Bathroom editions (midrange in the $20,000 area, upscale $40,000 plus) have an ROI higher than 80%.

 

Window upgrades are almost always a safe investment if replacing windows more than five years old.  It’s safe to assume that they generate an additional value for the home via aesthetic improvements.  They also contribute to energy savings.  80-90% ROI is a safe estimate to use as a rule of thumb, particularly because of the added benefit of all of the incentives available.

 

While bedroom and common room updates (such as creating a so-called “master suite” in older homes to modernize them) does generate large returns (above 70% according to mid-boom estimates in the middle of the last decade), these should today be balanced with the return of installing less visible energy efficient appliances and HVAC systems which impact monthly maintenance costs.  The predicted soaring cost of energy makes these investments mandatory for attracting new buyers for a simple, bottom-line reason.  They reduce if not eliminate monthly expenses. 

 

Such features also create an additional selling point for every buyer seeking a “green” home.

 

How homeowners finance these renovations is also an area where opportunities to save money exist.  There is considerable opportunity now to embark upon major green upgrades to lower the risk of assuming the mortgage.  The sheer number of incentives available, including low-cost loans and tax incentives, helps owners upgrade their current properties in traditional ways, and even begin to branch out into new and exciting arenas.  The rise of the so-called “green mortgage” is one of the brightest developments in the real-estate space, although such instruments are still underutilized.  More than one critic of the current administration has suggested that green mortgages might well solve the ongoing mortgage crisis for underwater real-estate.  Yet so far, green mortgages have not been an option that is widely considered by refinancing banks.

 

However, it is only a few years until the concept of a house becoming a net-positive energy producer, if not the source of a new income stream, will become widely accepted.  The idea of eliminating energy costs or even turning one’s home into an energy-positive revenue source with the installation of, for example a solar roof, might well prove to be the one reliable way to increase property values or even generate cash flow.  This potential alone creates tremendous incentives for home-owners who are able to make such investments of time and money.   According to many economists, this might be the best investment of all in an economic environment where other indicators that directly impact housing prices are expected to remain tenuous if not volatile for the rest of the decade.

 

 

 

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