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Rising remodeling costs coupled with an overall slowdown in housing activity nationwide combined to extend the general downward trend in Cost vs. Value data. After several years of accelerated remodeling spending and record housing appreciation, it is not surprising to see a moderating trend in the share of cost recovered for remodeling projects. What is more difficult to peg is the extent of the downturn. As is often the case, the data tell more than one story.
Some of the volatility in year-over-year comparisons is brought about by two changes to report methodology itself. The first is a general overhaul of project descriptions and cost estimates, begun in 2006 and completed this year, which resulted in disproportionate increases in the cost of some projects (notably major kitchen remodels, bath projects, and siding replacements). While these updated construction costs are more accurate than in previous years, they combine with falling home appreciation rates to create a lower percentage in the "value" column.
The second change began in 2002 with the introduction of higher-priced "upscale" versions of some projects. While the range of costs thus created made the report more useful, it muddies the waters with respect to year-over-year comparisons. One of the 5-year trends shown in the graph (below), for example, measures the performance only of the 15 "core" projects that have been included in the report all five years. The other measures all projects which, counting new and upscale versions, stands at 29 in 2007. While the trend of “core” projects turns down in 2003, the trend for all projects peaks in 2005 before turning downwards.
"Core" projects are the 16 projects (both mid-range and upscale) that appeared every year between 2003 and 2007. "All Projects" includes 29 projects in 2007; 25 in 2006; 22 in 2005; 18 in 2004; and 15 in 2003.
As we continue to survey all 29 projects in future years, we expect year-over-year trend data to become more and more reliable. Until then, the most useful comparisons are of national data for single projects, and regional cost and value differences.
As a measurement of the strength of the existing housing market, 2005 was the year homeowners could expect to recover the largest share of costs for remodeling projects. A year-over-year comparison of share of cost recovered for common remodeling projects shows, for example, that in 2005, all 22 projects covered in the Report returned at least 70 cents on the dollar in resale value, and in 2006, 23 of 26 projects performed as well. But in 2007, the number drops to 16 of 29 projects. Again, in 2005, 15 of 22 projects returned more than 85 cents on the dollar, but in 2006, that dropped to just 4 of 25; in 2007, it is down to just 2 of 29 projects. And while 10 of 22 projects returned more than 90 cents on the dollar in 2005, none perform that well in the last two years.
