Trends
Overall, the trend in the cost-to-value ratio has been dropping since its peak in 2005. This is the result of steady increases in construction costs, along with a downward slide in home values over the same period (see graph below). While the rate of decline appears to be slowing, the economy is still too unsettled to predict whether the cost-value ratio will begin trending upward by the middle of next year, when some experts predict the remodeling market will begin to improve.
Composite average costs, which reached a low point in 2004, have risen 40.3% in the last five years, while composite average resale value has risen just 11.3%. The resulting composite cost-to-value ratio of 63.8% represents a continued decline.
There are, however, indications that costs are beginning to moderate, particularly in light of the decline in remodeling spending and the influx of new-home builders into the remodeling market. If home values hold steady or begin to rise in 2010, the ratio of cost to value could improve in the coming year. But it is difficult to predict how continued mortgage foreclosures and changing appraisal practices will affect resale values.
Small Jobs Lead the Way
The 2009–10 Cost vs. Value Reports extends a trend established in recent years toward higher cost-value ratios on smaller, lower-cost, maintenance-related projects. Siding and window and door replacement projects occupy seven of the top 10 rankings for cost recouped, in part because they are often necessary repairs and involve durable, low-maintenance materials that improve curb appeal. Another factor may be their comparatively low price. With construction costs of less than $20,000, these projects are among the least-expensive projects in the survey, and are better candidates for financing in the still-tight credit market. The high value of window replacement projects may also indicate that rising energy prices continue to influence remodeling decisions. Although the payback period on replacement windows can vary greatly, in homes with windows more than 15 years old, new windows not only reduce maintenance and boost curb appeal, their higher insulation levels and greater air tightness also improve a home's energy efficiency. In addition, window and door replacements are among the improvements eligible for tax credits under the 2009 Stimulus Bill.
By contrast, just two of 12 upscale projects rank in the top 10 for cost recouped at resale, although one of them, fiber-cement siding, is once again the highest ranked upscale improvement. Its No. 2 overall ranking is significant given that it costs 10 times as much as the No.1–ranked steel entry door.
Regional Comparisons
Regionally, cities in the Pacific states once again outperformed the rest of the nation. While construction costs in this region are more than double those of the next most expensive region (Middle Atlantic), resale value more than makes up for it, outstripping national averages by more than 33%. The result is an average cost recouped percentage that is 14.8% higher than the rest of the country.
For comparison purposes only, however, the picture is a bit clearer when the Pacific Region is treated as an outlier and omitted from the equation (see graph below). The remaining eight regions fall within a tighter range. From this perspective, the New England states are about equal to the national average in cost recouped (orange bars), and the low cost and high cost-value ratio of the southern and mountain regions is clearly highlighted.
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