Spending on improvements and maintenance averaged less than $1,000 a year annually from 2000 and 2005
The age of America’s housing, rising energy prices and ownership demographics
will continue to propel the remodeling industry
As the country’s housing market cools off, a new study suggests that more homeowners will likely spend their money on routine maintenance rather than a pricey remodel of an entire bath or kitchen over the coming years.
Rising interest rates, slower appreciation and faltering home sales mean homeowners will simply be staying put longer, says Harvard University’s Joint Center for Housing Studies in its latest report released in February.
“Recent buyers often focus on updating their kitchens and baths as well as adding rooms or making structural changes,” said Amal Bendimerad, a research analyst at the center. “Given that their use of space is already well established, however, longer-term owners make different spending options, choosing to maintain the condition of their homes.”
The report, “Foundations for Future Growth in the Remodeling Industry,” says more Americans than you’d think have neglected the basic upkeep of their homes. Spending on improvements and maintenance for 45 percent of owner-occupied homes averaged less than $1,000 a year annually from 2000 and 2005. That’s 31 million homes spending well below the overall average of $2,500.
Underinvestment isn’t just for lower-value homes either. Owners of 3 million homes valued between $250,00 and $300,000 in 2001 spent less than $1,000 a year on maintenance between 2000 and 2005. The same amount goes for 2.2 million owners of homes priced at $300,000 or more.
Even landlords will see the need to upgrade their properties. In 2005, the study says inflation-adjusted spending on improvements and maintenance per rental unit averaged almost 35 percent below its peak levels spent in the late-1980s.
The report also addresses how the age of America’s housing, rising energy prices and ownership demographics will continue to propel the remodeling industry up 44 percent by 2015.
- About one-third of the nation’s owner-occupied homes is at least 45 years old and another one-third is between 25 and 45 years old.
- Owners of older homes will have to address rising energy costs. For example, homes built in the Northeast since 1990 use about 30 percent less energy per square foot on average than those built before 1970. Regardless of a home’s age, more homeowners put energy efficiency on the top of their concerns.
- The growth in senior, minority and nonfamily households will make up the fastest-growing segments of homeowners. All these groups tend to hire professional contractors rather than do it themselves. This reflects the fact these groups are more likely to replace equipment and to live in urban areas.
Full-scale remodeling of kitchens and baths certainly isn’t going away, just taking a breather from the strong pace that saw the remodeling market double in 10 years, reaching a high of $280 billion in 2005.
“As the housing market correction has progressed,” the report states, “many potential remodeling projects, like many potential home purchases, are being deferred until local home prices hit bottom.”
Housing prices continued to fall in some housing markets around the nation, according to a government agency report released last month covering price changes during the fourth quarter of 2006, but overall showed modest growth.
Nationally, home prices rose 5.9 percent, compared to the fourth quarter of 2005, according to the Office of Federal Housing Enterprise Oversight, and 1.1 percent from the third quarter of 2006. However, year-over-year price increases were the lowest recorded since 1999.
“House price appreciation is, for now, more in line with historical norms,” said James Lockhart, OFHEO director, in a statement.