The 2010-11 data extend the downward trend in the overall cost-to-value ratio that began in 2006. In fact, the 3.8 point slide from 63.8% to 60.0% represents a slightly accelerated decline compared with last year’s 3.5-point drop (see "Cost vs. Value 8-Year Trend," below).
Between 2006 and 2009, the cost-value ratio dropped almost 23 points, mainly because estimated project costs (blue) rose sharply while resale value estimates (green) remained fairly stable. This year, costs dropped more than 10%, returning to pre-2007 levels, but resale value dropped even more – the 15.8% slide is the steepest decline in this 8-year period. The result is an overall cost-value ratio (orange) of 60.0%, a 3.8-point slip that is slightly larger than last year’s 3.5-point decline.
Until this year, the ratio has been driven down by eroding home prices and rising construction costs. That pattern ended this year when overall construction costs declined 10.4% to a level that is midway between where costs were in 2006 and 2007. However, rather than leading to a rebound in the cost-to-value ratio, lower costs were overmatched by a 15.8% drop in estimated resale values, the biggest decline in the last eight years. This reflects the continuing instability in the real estate market which, despite record-low mortgage rates, has remained sluggish due to continued tight lending practices and uncertainty over foreclosures and distressed properties. And while the news isn’t bad everywhere – cost recouped for projects in the Pacific and Southern regions are strong (see "2010-11 Regional Variance vs. National Averages," below) -- the overall mood among buyers and homeowners is guarded and cautious.
In this graph showing the regional variance in estimates for project cost and resale value, and cost-recouped (cost-to-value ratio), positive numbers indicate results that better than the national average; negative numbers, worse. Higher-than-average ratios in Southern regions stem mainly from lower-than-average project costs; by contrast, the Pacific region outperformed national averages despite high project costs because of much higher resale values. States in the north central part of the country continue to show a lower-than-average cost-recouped percentage ratios due to a combination of higher project costs and dropping home prices.
Small Jobs and Replacements Lead the Way
The top ten spots in the national ranking are occupied by thirteen projects (including ties), and it’s a sign of the times that nine of these are exterior replacements. Replacement projects have always performed better in resale value than other types of remodeling projects (see "Replacement vs. Remodeling," below), partly because they are among the least expensive projects in our report, and partly because they are non-discretionary improvements that contribute to curb appeal, which is a strong subjective factor among home buyers.
Replacements projects have historically outperformed full-service remodeling projects, primarily because they are lower-cost projects that are perceived as essential to regular home maintenance.
This is certainly the case with the top two projects, entry door and new-this-year garage door replacement, which are the two least expensive projects evaluated in the current price-conscious economy. But the number three spot is occupied by fiber-cement siding replacement, which comes with an "upscale" price tag that averages $13,382 nationally. Since it was added to the survey in 2005, fiber-cement siding replacement has been remarkably stable: it has ranked first every year among projects costing $5,000 or more, and this year showed the smallest cost increase (less than 1%) of any project.
The four non-replacement projects in the top ten also seem to reflect the price-conscious mood of remodeling customers, although to different degrees. Wood deck addition, which tied for fourth with minor kitchen remodel, is not only relatively inexpensive, it is almost considered essential rather than discretionary, particularly in neighborhoods where every home has an outdoor living space. Minor kitchen remodel may at first appear to buck the trend -- at $21,695 nationally, it is the highest price among projects under $25,000. But this project represents a relatively inexpensive "face-lift" to what is for most prospective buyers the most important room in the home.
The remaining two projects in the top ten, attic bedroom remodel and basement remodel, are relatively expensive, but represent good value to home owners looking for additional space. Both projects add living space and a bathroom within the existing footprint of the home, and both make good use of space that would otherwise be used only for storage.