From the nytimes.com:
One part of the housing market is experiencing a rebound that will probably continue even if the rest of the market remains sluggish: remodeling.
A recent report by the Joint Center for Housing Studies at Harvard University predicted that remodeling would rebound strongly this year after a three-year downturn. The center estimated growth of 9.1 percent for the first quarter and 12.1 percent for the second quarter. The predicted rate drops for the end of the year, but annual growth in remodeling is expected to be around 8 percent. In fact, the study found, the remodeling market held up far better than housing construction during the recession, with annual spending still close to $300 billion.
Kermit Baker, director of the remodeling futures program at the Joint Center for Housing Studies, said that remodeling nationwide was likely to remain strong as homeowners who put off maintenance and improvement projects began to spend more freely again. The study also found that the industry was beginning to benefit from the rehabilitation of foreclosed properties.
WHY THE REBOUND? It may seem counterintuitive that even as the housing market continues to suffer and the economic recovery feels tentative, the renovation market is picking up. But Mr. Baker pointed out that while home sales and construction were linked to mortgage rates, renovations were determined more by income levels and job security.
“Remodeling is not heavily financed,” he said. Instead, people are willing to spend cash, Mr. Baker said, because they have “a comfort level that the value of my home isn’t depreciating.”
He said during the peak years of 2006 and 2007, only 30 to 35 percent of renovations were financed through home equity loans or second mortgages. Last year, that number dropped to 15 to 20 percent.
He said there was more growth in smaller projects — energy-efficient windows and heating and air-conditioning systems — than in full-scale additions. Yet he said he expected continued growth across all types of renovations.
Historically, the Northeast and the Midwest have driven renovations because of older homes and higher personal income rates. That is happening this time around as well. But one difference is that the South and the West, where the house-building boom was centered, now have more homes that will need improvements. Foreclosures in these areas are also a factor in this.
“Houses are staying in the foreclosure process now for up to 500 days,” Mr. Baker said. “Owners are not putting money into maintaining the home because they’re ultimately going to be out on the street. A buyer who buys that home for 30 to 50 cents on the dollar or an investor who wants to flip it in nine months is going to have to put money in.”
