Home sales and prices are up, and mortgage rates are still considered low by historical standards. The combination is a recipe for a strong 2014 home remodeling forecast.
But not all home improvement projects are created equal, and getting the best bang for the buck is tricky. Still, in its recent annual study, Remodeling Magazine found that the value rose for all 35 of the projects commonly undertaken by homeowners.
That's a different story from three years ago, when the decline in home resale values was greater than a drop in construction costs. The numbers started to turn around last year in the magazine's Cost vs. Value report, but that was largely because of a continued decline in construction costs.
This year, the improved housing market means homeowners are regaining equity in their homes, and that confidence is expected to spur them to take on deferred projects for their own enjoyment or spruce up their homes for sale.
Home improvement spending is expected to be strong for at least the first nine months of the year, after which it could slow, depending on the direction of interest rates, according to the Joint Center for Housing Studies at Harvard University. The center is projecting a 14 percent year-over-year increase in spending during 2014's first three months, to $144.7 billion. By the third quarter, spending could total almost $154 million.
"The housing industry is not just stable, but growing in many cities, and in many cities home values are growing again," said Abbe Will, a research analyst at the center. "Homeowners are feeling much more confident investing in their homes again. Contractor sentiment is really strong."
Indeed, a remodeling market index calculated by the National Association of Home Builders held steady in 2013's last three months. As a result, for the second half of last year it was the highest it had been since early 2004, as remodelers reported increased calls for project bids, more work commitments and more appointments for proposals.
While high-end projects receive the oohs and ahs, midrange projects typically generate a bigger return when a homeowner sells a home, according to Remodeling's analysis. Also performing well were projects that added to a home's living space without increasing its footprint.
For instance, finishing a basement to turn it into a 20-by-30-foot living space with a wet bar, adding a bathroom with a shower, and enclosing the home's mechanical area is a job that could cost almost $79,000 in the Chicago area. At resale, the project's value was almost $59,000, or about 75 percent of the cost.
Likewise, almost all of $60,000 spent in the Chicago area to remodel an attic into a bedroom was recouped at resale.
A midpriced $20,000 bathroom remodeling more than paid for itself at resale in the Chicago area, according to the data. So did a midpriced minor face-lift to a kitchen that cost about $22,000.
The same cannot be said of upscale projects in those two rooms. Chicago-area sellers only recouped about 75 percent of the cost of a $58,000 bath remodeling and 71 percent from a $123,000 major kitchen project.
Beyond kitchens and bathrooms, the data for Chicago show that people here do love their outdoor spaces, namely their decks and in particular nonwooden decks. Upon resale, Chicago-area homeowners recouped a few hundred dollars more than the cost of a $17,000 composite deck addition, according to the magazine. Area homeowners recouped 96 percent of the cost of a $12,000 wooden deck. Nationally, homeowners recouped about 74 percent of the cost of a composite deck project and 87 percent of a wooden deck.
For those not interested in anything major, a few curb appeal touch-ups may be just the trick. At resale, Chicago-area homeowners recouped 151 percent of the cost of an $1,800 garage door replacement and 88 percent of a new $1,300 steel entry door.