Construction costs in the 2011-12 Report continue to drop, though at a slower rate than last year. The drop in resale value, however, more than compensates, resulting in an overall cost-value ratio (orange) of 57.7%. This 3-point slip is smaller than last year’s 3.8-point decline and may signal that housing values are nearing the bottom.
In Pacific Region markets, the high cost of remodeling is more than offset by high values at resale, giving it the highest average cost-value ratio (71.3%) in the country. The next best-performing regions are West South Central (67.6%) and South Atlantic (67.3%), mainly due to the low construction costs and relatively strong resale values. High costs and declining house values keep the cost-value ratio slightly above the national average in three regions: New England (60.5%), East South Central (59.8%), and Mountain (58.5); while the remaining three — Middle Atlantic (56.8%), East North Central (55.3%), and West North Central (49.5%) — performed below the national average (57.7%).
Siding, Window, and Door Replacements Still on Top
The top 10 projects in the 2011-12 ranking show a cost-to-value ratio of between 69% and 78%, for an average of 71.6%; that’s down from the top 10 average of 75.8% in the 2010-11 rankings. Once again, replacement projects continue to perform better in resale value than other types of remodeling projects (see graph): seven of the top 10 are occupied by siding-, window-, door-replacement projects. The high value of replacements is partly due to their relatively low cost — with the exception of the roofing projects, all replacement projects are priced at less than $19,000. In addition, most replacement projects immediately improve curb appeal, which is a strong subjective factor among home buyers. Finally, the use of durable, low-maintenance materials in replacement products appeals to home buyers who increasingly are looking to reduce both the operational cost and maintenance cost in their homes.
Leading the rankings is fiber-cement siding, with a cost-value ratio of 78.0%. One of only four upscale projects in the top 10, the Fiber-Cement Siding project has been in the No.1 spot for six of the seven years since it was added to the Report. Other upscale projects in the top 10 include: Garage Door Replacement (71.6%), which jumped from 13th to sixth, partly because the average cost of the project dropped more than 15% nationally; Foam-Backed Vinyl Siding Replacement (69.6%); and Vinyl Window Replacement (69.1%).
Replacements projects have historically outperformed full-service remodeling projects, primarily because of their lower cost and the fact that they are perceived as essential to regular home maintenance.
Among discretionary projects, the Attic Bedroom remodeling project is in the top 10 for the third year in a row, despite being the most expensive project in the top 10, at an average cost nationally of $50,148. One possible reason for the high value placed on this project, which is ranked third overall (72.5%), is that, of all of the projects covered in the report, it is the least expensive way to add a bathroom and bedroom, and it does so within the home’s existing footprint.
It’s worth noting that Minor Kitchen Remodel is fourth overall (72.1%), two places better than last year. At a cost nationally of just under $20,000, this project is the least expensive way to give an existing kitchen a complete facelift. In fact, it is the interior version of a replacement project, and includes new cabinet door and drawer fronts and hardware, new countertops, and new appliances. Not surprisingly, since 2004, when Minor Kitchen Remodel was added to the project list, it has been the best-performing K&B project in every year but one.
Historically, K&B projects have consistently performed several points higher than average in cost-value ratio. In recent years, however, the gap has narrowed, and this year K&B projects matched the overall national average for cost-value ratio.