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By Amy Hoak, MarketWatch

Link: http://www.marketwatch.com/story/remodeling-projects-making-a-comeback-2011-01-31?pagenumber=1

R emodeling is Making a Comeback

CHICAGO(MarketWatch) — After years of shelving projects and doing only improvements deemed absolutely necessary, more homeowners are dusting off their remodeling plans this year as they grow more hopeful about the economy.

And given that many contractors are still willing to slash their prices to get new business, it could be a good time to get projects done for a low price.

Long road to recovery
The U.S. housing market may take five or six more years to recover.

For remodeling, it’s a buyer’s market, said Paul Zuch, president of Capital Improvements, a remodeling firm in Dallas, and president of the National Association of the Remodeling Industry.

During the downturn, Zuch’s company lowered profit margins to stay competitive not only with other established remodelers but also with home builders who began to dabble in remodeling when demand nearly completely dried up for new homes.

In fact, 80% of the 554 home-improvement contractors who participated in a recent Angie’s List survey said they would slash prices to win a bid — with some saying they’d drop their price by as much as 20%. Angie’s List is a website that collects consumer reviews of local contractors.

Dusting off ideas
Today, people feel that perhaps the housing market has hit bottom or is getting close to it, and projects they’ve put off are getting another look, said Abbe Will, research assistant at Harvard University’s Joint Center for Housing Studies.

And as the housing market gets on firmer ground, that will also spur more remodeling: Previous research has shown that a large amount of remodeling spending happens when homes are being prepared for sale and right after homes are purchased, Will said.

But as demand for remodeling increases, expect those contract discounts to start disappearing.

Remodeling expenditures are forecast to rise at an inflation-adjusted annual average of 3.5% between 2010 and 2015, according to a recent report from Harvard University’s Joint Center for Housing Studies. The estimate includes home-improvement spending, but not money spent on home maintenance and repairs. The report predicts a long-term recovery for an industry that experienced a double-digit decline from its peak in 2007.

Beyond the basics
Most investment in home improvements over the past couple of years has focused on the necessities, Zuch said. People replaced an air-conditioning unit if it went out, for example, but put off other more discretionary jobs including painting the house, he said.

That’s beginning to change, though homeowners remain more cautious about overspending than they once were, he said. “Clients who we were talking to two years ago have called up and said ‘We’re ready to put this back on the front burner and move forward,’” Zuch said. Some homeowners are now forging ahead with improvements that include kitchen and bath upgrades, he added.

Homeowners who are taking on more discretionary projects, including whole-house renovations and the creation of outdoor living spaces that include kitchens and entertaining areas, plan on living in their homes for a long time, he said.

When the housing market was stronger, people were more likely to move when their home no longer suited their needs, said Angie Hicks, founder of Angie’s List. But these days, many people are improving the homes they’re in so they don’t have to move.

All that said, remodeling demand will vary significantly depending on the market you’re in. Will said hard-hit areas where many homeowners are underwater on their mortgages, such as Las Vegas and markets in Florida, won’t likely see much of an increase in remodeling for a while.

Prioritize your wish list

If you’re thinking of remodeling in the months ahead, start by prioritizing your projects.

“We really encourage consumers to do an inventory of their houses every year,” taking note of the improvements that are needed, Hicks said.

From there, it’s a good idea to tackle projects in order of importance. For example, “don’t add a deck when you need to replace the water heater,” she said.

Projects that make a home more energy efficient, such as new windows and doors, will likely end up high on the lists of homeowners, Will said.

If you are planning on selling your home in the foreseeable future, focus on projects that will make a difference to buyers and will bring a good return on investment, Hicks said.

Upgrades that improve curb appeal — including new doors and landscaping — could help sell your home, she said. It’s also important that everything in the home is in good repair, so fix leaky faucets or replace a furnace that’s at the end of its life before tackling cosmetic improvements, she added.

Also, keep your home’s features in line with other homes on your block. That will help at resale, when comparable sales in your neighborhood will help set the price of your home. If every home on the block has two bathrooms, adding a third bathroom in your home likely won’t offer a good return on your investment, Hicks said.

Amy Hoak is a MarketWatch reporter based in Chicago.

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