“The past year or so has shown how valuable real estate is in the country, both to our nation’s economy and to individuals who have been given an opportunity to rethink their location and redesign their lifestyle,” NAR President Vince Malta
TOP STORY: A New Appreciation
The old saying “be careful what you wish for” took on more meaning over the past year and a half as, like it or not, many of us found ourselves not just able, but often required, to spend more time at home.
Think what house and home have come to mean. The coronavirus pandemic has forced us to treat our houses as more than merely a shelter or, as an old joke says, a place to return to when there is no place else to go. It is still that, but it is also a workplace, school room, a place for meeting friends, keeping in touch with families, exercising, organizing causes, even holding virtual events via high tech apps and old-fashioned phone calls. Our homes have done a lot for us this year. It could be time to celebrate them; to stop and appreciate those four walls and what lies within them.
A New Awareness
And there are signs that Americans are demonstrating a new appreciation for home and hearth. The blogs, even those that don’t necessarily concern themselves with anything approaching domesticity, are filled with suggestions as to how to adapt a home meant for eating, sleeping, cooking, and watching television into one that is appropriate for the new normal. Not only the multi-functions mentioned above but keeping things safe and clean.
However, not everyone has the space, the equipment, or the talent to launch many of these pandemic hacks and even the best of them can go only so far. The prettiest room dividing screen isn’t going to deter a toddler hell bent on attending your Zoom training session.
The pandemic has spurred a lot of housing activity. Once the initial lock downs eased, home sales surged. Real estate agents have reported, and data is now beginning -to confirm, t-hat buyers are seeking larger homes with space for home offices or at least homes that can offer some potential for privacy and quiet. There are also indications that there is some migration to outlying suburbs to avoid congestion. But one trend that has not received a lot of attention is the stimulus the crisis is giving to home improvement.
Shifting from Selling
Certainly, many people want to adapt their houses to make the new normal more…well, normal, and fixing up our home has always been viewed as a way to maintain if not increase its value. But maybe spending so much time, even though we have sometimes spent it unwillingly, in our homes has changed our concept of home value. Recent lifestyle changes appear to be encouraging owners to improve their homes more for their own enjoyment than with an eye to selling it.
Abbe Will of The Joint Center (Harvard/MIT) for Housing Studies writes, “The remodeling market was buoyed through the early months of the pandemic as owners spent a considerable amount of time at home and realized the need to update or reconfigure indoor and outdoor spaces for work, school, play, exercise, and more.”
Kermit Baker and Sophia Wedeen, also Joint Center analysts, note that the current level of discretionary home improvements runs counter to the typical decline when the economy slows. Instead “many homeowners who have not been adversely affected financially by the recession have been active in upgrading their homes to accommodate their evolving needs.”
DIY or Have it Done?
What isn’t yet clear is how much of the home improvement dollar has been spent hiring professional help and how much is DIY, enabled by the extra time spent at home. Baker and Weedon say, given the past concern about the health risks of bringing contractors or other service providers into their homes, many homeowners have been more inclined to undertake projects themselves and the uptick in remodeling and maintenance seems to be more pronounced on the DIY side of the ledger.
A set of consumer surveys that ultimately reached 10,000 households was conducted by the Farnsworth Group and the Home Improvement Research Institute. Fully 60% of respondents had started a DIY project near the beginning of the pandemic, and several month later, that number had reached 80%. When asked why they choose to DIY, 84% said they had more spare time or were home more (81%), while 34% said it saved money and 21% said they didn’t want contractors in their homes.
This is at odds with the longer-term trend which has cut the non-professional share of the home improvement budget by 20%, to $1 out of every $5, over the last 20 years. Baker and Wedeen said this is probably due to a lot of factors including growing household income, more complicated materials and products that need professional installation, a declining interest and exposure to manual labor, and an aging population.
Keeping It Simple
The recent reversal of the eroding DIY trend doesn’t mean homeowners are turning into a new generation of handy men and women but rather that staying at home has given homeowners the opportunity to tackle their longstanding to-do lists of home improvement and maintenance projects. The most common projects reported have been lawn maintenance, landscaping, painting and decorating, and general home maintenance, not only relatively simple projects, but ones that reflect the recent orientation toward the outdoors in many households.
The National Association of Home Builders (NAHB) of course has an interest in the professional end of the remodeling game and recently surveyed their members who specialize in that type of construction, asking them to identify projects where increases in demand appear directly related to the pandemic. Bathrooms and kitchens were at the top of the list as they are in good times and bad, ranking first and third, respectively. The rest of the top five were improvements to allow for more and/or improved outdoor living decks, patios, and porches.
As if 2020 hadn’t been confusing enough, now we have to contend with multiple “Colors of the Year.” Sherwin Williams picked Urbane Bronze, a “warm,” “sophisticated hue” “chosen to evoke a sense of calm, stability, and connection with the natural world.” Valspar (BTW also a Sherwin-Williams company) unveiled a whole slate of 12 “soothing shades;” a palette “aimed to bring a sense of comfort and well-being to people’s walls, ultimately blending home improvement with self-improvement.” Colors range from Blissful Blue and Gallery Gray to Dusty Lavender and Maple Leaf. Pantone, which once absolutely owned the picking rights, seems to have devolved into seasonal choices. We think they are just being greedy. Various Sources
NAHB executive Paul Emrath said “The obvious explanation is that people think they’re going to be spending more time at home. Rather than going out somewhere, they entertain themselves on their patio or deck.” He noted other projects that have increased in popularity are home additions and the conversion of existing rooms into home offices.
NAHB found increased demand at all price points, but Emrath warned that issues with supply chains are resulting in delays and higher prices for some projects. Lumber prices in particular have been rising rapidly.
Paying the Plumber
No matter how large or small, accomplished by the homeowner or left to a remodeling pro, home improvements cost money. Even a few gallons of paint and the tools necessary to prep for and apply it can run into triple digits. Small projects can often be funded out of pocket or put on plastic, although the latter choice will run up overall costs if not paid off quickly. Really big projects are usually funded most economically using existing home equity. There are three mechanisms for doing this: a cash-out refinancing, a home equity loan, or a home equity line of credit (HELOC). One of these may be more advantageous to your situation than the others.
NEED A LIFT?
Savaria Corporation has rolled out a new aid for “aging in place.” Its new compact elevator, the Vuelift Mini, is a see-through cylinder with a 50-inch footprint that can be installed inside a spiral staircase, attached to a balcony or mezzanine, or inserted through floors. It can be configured for up to six stops and 50 feet of travel and features a winding drum drive system with a 500 pound capacity, quiet operation, and battery backup to lower the cab in a power outage.
The elevator is available in clear acrylic or UV-resistant glass, with a matching cab and landing doors. A black frame is standard but custom colors are available. Mary Salmonsen, Savaria.
A cash-out refinancing will allow the remodeling costs to be spread out over a long term, 15 to 30 years, and at an exceptionally low interest rate. In fact, if you are refinancing an older mortgage, current rates may lower your monthly payments despite the higher balance. The downside is that cash-out refis could be more difficult to get approval for because of stricter qualification factors. Then too, the long-term amortization can cut two ways; you could find yourself still paying off that dream kitchen when you’re thinking it might be time to remodel it again.
A home equity loan is a fixed-rate loan, offering constant payments over a 5 to 20-year term. Money is taken in one lump sum and is secured by a junior lien on the home.
HELOCs have an open period (typically ten years) during which withdrawals can be made. Payments during this period are usually interest only on the actual outstanding balance, so if your project costs less than expected, the difference stays with the bank. HELOC rates, however, are adjustable so payments can be unpredictable. At the end of the open period the loan starts to amortize, and payments can take a substantial jump.
A snapshot of rates at one institution shows the relative costs of these loans. In a week in which the 30-year mortgage rate was 2.81%, this bank’s home equity loans ranged from 4.49% (5-year term) to 5.24% (20-year). The HELOC rate was at 2.75% and will adjust using the prime rate minus 50 basis points.
We should also note the availability of FHA 233K rehabilitation and Fannie Mae HomeStyle renovation loans. Both are intended for major projects and the rules for using the FHA funds are both technical and considerable. Best to call us for details.
Keep in mind that all these loans are secured by mortgages on your home. A mortgage always carries a certain risk.
ONE TO A CUSTOMER
A new California law went-into effect on January 1, 2021 that aims to prevent the conversion of massive numbers of foreclosed homes into rental use as happened in the Great Recession. The law, SB 1079, will stop lenders from bulk selling homes should the current COVID crisis stoke another foreclosure epidemic. It will also give tenants, non-profits, and local governments first crack at buying the properties.
Wall Street investors bought up some 5.6 million homes from 2006 to 2015, creating persistent inventory shortages. The investors have been accused of tenant abuses and failing to maintain properties. Marissa Kendall, The Mercury News
The rapid appreciation of homes over the last decade means that those’ who have been homeowners for a few years probably have a lot of equity, but a global pandemic is not the time to spend it wantonly. No matter how much you crave an outdoor kitchen, keep your eye on the financial endgame; plan carefully, spend accordingly.
There is tons of information online about the increased home value of various projects and possible payback at sale. (RIS Media’s cost-vs-value home improvement is one such site.) Maintenance projects or systems upgrades like a new roof or windows, typically have a higher return than the glamour projects. For example, HGTV recently put a home’s appreciation by way of new siding at 92.8% of the installation’s cost. Money spent on kitchens and baths increases value in the 80- 90% range, but the return ratio is higher with updates than for major rehabs. A well-planned project will ultimately increase to a degree, the value of the home, returning at least some of that expended equity.