Archive for the 'The Valley' 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.
84 Tunxis Village, Farmington CT
I recently listed this move-in ready, 2 bedroom, 2.1 bath, 1,660 sqft townhouse condo in Farmington. The home is located in the gated Tunxis Village community just west of the river and adjacent to both the Tunxis Plantation Country Club and the Devonwood Community, and close to Winding Trails.
The condo features an updated, eat-in kitchen with plenty of cabinet space, a living room with fireplace, and a private slate patio. The two spacious bedrooms upstairs each have their own full bath and generous closet space. Laundry is located on the first floor of the unit. Also enjoy all the amenities of the Tunxis Village community, including tennis courts, the swimming pool, hiking trails, and even a car wash station.
84 Tunxis Village is offered at $216,000. If you’d like to see it, please have your agent arrange a showing or call me at 860-655-2125 to schedule a visit. Alternatively, you could stop by our open house on Sunday, June 28th from 1:00-3:00.
Here are some pictures for a preview…
National Real Estate Stories
It’s been a big day for real estate in the national news. The Wall Street Journal had three articles that caught my eye. And then Case-Shiller data was also announced this morning.
First was the front page piece titled Price Cuts Spur Home Sales. December existing home sales data was released on Monday. The market had expected another month-over-month decrease after November’s 9.4% drop in the number of transactions. However, the December report showed a 6.5% increase in sales over November. Amazingly, 45% of the sales in December 2008 are reported to be either foreclosures or sales in which the owner sells for less than they owe the bank, also known as a “short sale.”
The article goes on to discuss some of the main factors impacting the falling home prices. The three key factors seem to be local employment opportunities, inventory/supply (amount of new construction during the recent boom), and general confidence in the market. The Greater Hartford region is not specifically discussed, but it is clear that we are in better shape that many parts of the country. Employment remains our biggest threat – more job losses could trigger an increase in inventory and a simultaneous reduction in demand. Overzealous construction is a relatively small risk because most of the land in this region was either already developed or protected as green space before the recent housing boom. Everyone has had their confidence shaken (some on multiple occasions) over the past 18 months, but for the most part I don’t get the sense that we’ve collectively given up hope. People seem to be taking a business as usual approach with an extra helping of caution.
The next interesting article in today’s Journal was a quick blurb titled Many Say Goodbye to McMansions. Recent surveys of both builders and buyers suggest that people are planning to move to smaller homes. This result is not terribly surprising due to the current economic environment (can’t afford as large a home), the shift in attitude away from speculating on residential real estate (don’t believe home prices will rise quickly) and the recent energy shock (can’t believe how much it costs to heat the “great room”). This would suggest that newer, larger, more expensive homes, which are often built at the outskirts of communities, would be most at risk of losing value.
The last item in the Journal, PowerShares Goes Bargain Hunting discusses two new actively managed ETFs that will buy distressed mortgages. The funds will focus on bonds backed by pools of prime and Alt-A (better credit quality than subprime, but not quite as good as prime) mortgages. Experts quoted in the article expressed limited enthusiasm. On the plus side, mortgage backed securities have sold off dramatically over the past few years. No doubt that some bonds have been unfairly punished as investors exited these complex and uniquely individual issues en masse.
The argument against the new ETFs focuses on the timing of the opportunity. Are we really seeing the bottom of the housing market, so that resale values will be sufficient to pay off the mortgages in full? There are additional concerns about whether or not the new ETFs are the appropriate vehicle for investing in the mortgage backed securities markets. ETFs were originally devised as low-cost index investment vehicles that passively replicated equity indexes. The new ETFs are quite different in that they are actively managed and invest in the less transparent bond market. There are other ETFs already on the market that have similar structures, but they are all relatively new.
Finally, multiple sources are reporting the Case-Shiller Index number for November. The index of 20 large metropolitan regions shows prices falling about 18% on average from November 2007 to November 2008. The Hartford region is not included in the data, but our Northeastern surrogates of Boston and New York both experienced smaller price drops than the overall average.
This round of coverage illustrates that home prices continue to be a major point of interest for both the financial markets and the general citizenry. Data continues to show falling prices, and analysis suggests that prices could fall further. For Greater Hartford, the key metrics continue to be employment and confidence. As long as our job markets and wages remain reasonably stable, there is no reason to expect home prices in this area to go into a freefall.