Archive for the 'Housing Prices' Category
Remodeling Cost versus Value
The November 2009 issue of Remodeling Magazine included the 22nd edition of their annual report about the financial impact of various home improvement projects. They look at both midrange and upscale projects, and hit on all the major renovations, calculating the percentage of the cost that could be recovered in a sale. Data is broken down by region and even by major cities within a region. I was excited to discover that Hartford is one of the cities profiled, meaning that the data is specific to our area. Check out the complete list of projects and paybacks for Greater Hartford on the Cost vs Value Website.
There is lots of interesting data – here are some observations after poking around the various reports:
- Most projects allow homeowners to recoup between 60% and 80% of their cost. Basically this is saying that it is not appropriate to think about renovations as “investments” since they will rarely increase the value of a home by more than the cost of the project. Sellers sometimes think that they should recover at least 100% of the value of recent projects. Every situation is different, so in some cases that may be true, but in general remodeling projects do not “pay for themselves” except when the owner’s enjoyment of the finished work is factored in.
- Most of the projects with higher payback percentages are structural renovations that have little opportunity to customize. For example, siding and window replacements rank highly. On the other hand, projects that are often very specific to the owners bring a lower payback. Examples here include a sunroom addition or a home office renovation.
- At the national level, payback amounts for most projects have decreased since last year. However in the New England region paybacks have actually increased for most projects, though the report doesn’t try to explain why this might be true. Perhaps the data simply reflects the fact that the housing stock in New England is older than in other parts of the country so renovations are more important here.
- Payback amounts are generally higher in the Hartford metro area than in the New England region, which are in turn higher than the national averages. Renovation projects are apparently very cost effective in our area – good news for us! Three projects return an average of more than 100% in Greater Hartford (siding replacement, converting attic space to a bedroom, and replacing the front door).
Check out the full report to see the specifics for any projects that you’re considering. The key message that the study sends is that each dollar spent on the average remodeling project translates into less than a dollar of increased value for your home. That being said, the payback for every project is going to be different. It will be based on the needs of your home and specific decisions made within the project.
Real Estate Stories of the Past Couple Weeks
There have been a number of interesting articles about real estate in the financial press over the past couple weeks. Here’s a quick wrap-up of what you may have missed while you were off for the holidays…
Wall Street Journal, December 23rd: Data from the National Association of Realtors shows that Home Sales, Prices Brighten (subscription required). Though the current data is positive, the author expresses concern about “a continuing flood of foreclosures and the eventual withdrawal of government life support.” They note that the housing has been strongest in “middle-class homes with short commutes,” something that rings true in the Greater Hartford markets.
Wall Street Journal, December 24th: The next day, the headlines reversed to New-Home Sales Drop 11.3% as Impact of Stimulus Fades (Subscription Required). This time the data came from the Commerce Department, which noted that the measure was very volatile (it had risen 7.4% the previous month) and new home sales make up less than 15% of total home sales. And in our area, new home sales are far less than 15% of the total.
Wall Street Journal, December 24th: On the same page, we learn that Resession Alters Migration Pattern in US. Although this story isn’t directly about real estate, it is interesting to consider the implication of people moving around the country on local real estate markets. A large map shows the population changes by state for 2004-2005 and then for 2008-2009. Florida and Nevada showed the most dramatic shifts, from strongly growing to modestly decreasing populations. Connecticut appears to be consistent across the two time periods with both reflecting losses of between 0 and 50,000 people.
Wall Street Journal, December 29th: Everyone who loves a good house hunting story definitely needs to read this tale as A Picky Home Buyer Pursues an Epic Hunt for ‘the One’ in the San Francisco Bay Area. It took over two years and 298 properties for Lidia and Doug Pringle to find the right place to call home. Wow.
Calculated Risk, December 30th: During the past two declines in home values (early 1980s and early 1990s), prices did not bottom until the unemployment rate peaked.
The Big Picture, December 31st: Morgan Stanley released a research piece suggesting that the 10 Year Treasury could rise to 5.5% in 2010. What caught our eye was that they estimated that the higher Treasury rates could push rates for 30-year fixed mortgages up to between 7.5% and 8%. These rates are, of course, much higher than buyers are used to seeing. The commentary basically says that Morgan Stanley must be concerned about inflation increasing, and that the charts the commentators use to look at the market show strong increases in inflation expectations over the past year.
Wall Street Journal, December 31st: The Department of Housing and Urban Development have had Rules to Clarify Cost of Mortgages in the works for a while, tightening the requirements around Good Faith Estimates that lenders give to buyers when quoting mortgage rates. Their overall goal is to force lenders to report all of their fees and rates in a way that allows borrowers to more easily compare rates between lenders. It will be interesting to see how this transition goes as lenders and real estate attorneys adjust to new regulations.
Wall Street Journal Blogs, January 1st: The Five Key Housing Issues to Watch in 2010 are 1. mortgage rates; 2. the future of Fannie, Freddie, and the FHA; 3. loan modifications; 4. more loan resets; and 5. the tax credit.
New York Times, January 1st: Some feel that the Federal Government’s effort to modify loans is Adding to Housing Woes. They argue that allowing homeowners to remain in their homes by modifying their mortgage has been counterproductive. Homeowners have their hopes falsely raised and waste money trying to keep a home they simply cannot afford before finally defaulting on the modified mortgage.
So that’s the word on The Street as the real estate markets move into 2010. The headlines seem to have a negative bias, highlighting concerning data, unsuccessful recovery programs, and the unfortunate reality of many Americans struggling. We’ll have to see how it all plays out here in Greater Hartford. And as always we’ll hope for the best and plan for the worst.
Zoning & Density in Hartford’s West End
On Thursday, October 29th, the West End Civic Association (WECA) Planning & Zoning Committee met to begin a conversation about many of the zoning-related issues that the neighborhood found contentious during the past year. The agenda listed density as the main topic, with specific mention of converting existing properties to include more approved units, new condo and multi-unit developments, fairness issues around illegal rentals, accessory dwelling units, the financial impact of zoning decisions on homeowners, and finally the fairness of zoning decisions on homeowners.
John Gale, committee chairman, kicked off the meeting with a brief history of zoning in Hartford and the current zoning in the neighborhood. Most of the area north of Farmington Avenue is zoned for single family, though there are a few blocks that allow more density. South of Farmington Avenue is zoned for higher density residential buildings. From there he transitioned to a quick survey of recent WECA Planning & Zoning Committee topics and positions. The stated goal of the meeting was to start a conversation, and to begin the process of working towards a WECA policy on common zoning issues in the neighborhood.
A Wide Open Discussion, Or Not
Once the floor was opened to the attendees, the discussion quickly narrowed to “problem properties,” which were all multi-family homes. The group seemed most concerned about nuisance issues (noise, traffic, parking, …), and discussed the appropriateness of using zoning laws as a primary strategy for fighting back. Although the zoning laws are clear about what is allowed, they are implemented inconsistently. Ambiguities seem to arise from bureaucratic issues like the Assessor and Zoning departments classifying properties differently, and the policy of zoning enforcement on an “as needed” basis. As a result, owners currently have the flexibility to use their properties in ways that conflict with zoning laws as long as they do not upset their neighbors and get reported to the city.
Overall, the group seemed to like that the zoning laws were inconsistent. Multiple attendees noted that the nuisance neighbors were more often than not living in multifamily properties owned by absentee landlords and configured in ways that conflicted with zoning. Others spoke about the limited success that they have had in working with the police department to address “quality of life” issues. Reporting the properties for zoning violations was an effective way to get the attention of the owners, and ultimately address problems caused by the residents.
A minority of the group spoke out against the zoning ambiguity, primarily on the grounds that it was bad business. One attendee described the ordeal he has been through after purchasing a multifamily property. His good-faith efforts to bring it into zoning compliance and improve the property have been halted by confusion within the city about what is allowed. The property in question is categorized differently by the Assessor and Zoning departments, and research by his attorney has uncovered evidence that a third use may predate the city’s 1968 implementation of zoning laws. Other attendees also described their challenging experiences in securing permits.
As a real estate agent trying to sell homes in the West End, it is very important to accurately describe, and advertise, a property so that potential buyers and other real estate agents know exactly what uses are permitted. This is obviously a challenge if the official policy is that many current uses are technically illegal, though allowed through non-enforcement.
But What About Density?
The question of density was not truly the focus of the meeting, though it surfaced periodically and again divided the group. Those supporting increased density generally advocated recognizing existing 3-families and allowing both 3rd-floor rentals and accessory dwelling units. They argued that density is good for local businesses, property values, expanding public transit, and energy efficiency. Those opposed to increased density focused on the traffic and parking issues that already exist in some areas of the neighborhood. The majority seemed to support increased density in theory, though the link to absentee landlords and nuisance neighbors seemed to make many feel it would not be right in practice.
Larger questions about density went unaddressed because no one raised them as issues. The Committee has held meetings to discuss proposals for a vacant lot on Kenyon, the former Medical Society building on Scarborough, and the University of Hartford Asylum campus. Each meeting drew numerous West Enders with a direct interest. And each meeting ended with the neighbors in attendance against aspects of, or all of, the proposed project.
An Important Conversation
Working together as a neighborhood to find agreement on zoning and development issues is challenging, but important, work. Previous meetings have demonstrated that there is not a single consensus among all interested parties. Taking the time to find common ground will allow WECA’s representatives to head off unacceptable projects on the neighborhood’s behalf, which will hopefully reduce the number of emergency zoning meetings. Perhaps the conversation will also help identify uses to encourage for specific properties.
This meeting was the first to allow a forum for the West End to be proactive in addressing a subject about which many have very strong feelings. We encourage everyone to get involved in the discussion by participating in the next meeting and raising issues that are important to them. Ideally, the effort will be able to identify policies that represent the neighborhood’s collective opinion so that owners and potential owners know what to expect when looking to change the use of their property.