Confidence Intervals

For national averages, the confidence interval is 95% +/-1.5 (i.e., 95% of the time, national results for this survey will fall within 1.5 points to either side of the results published here). Confidence intervals for each of the nine regions are as follows:

A sluggish housing market continues to push down remodeling return on investment. Since its peak in 2005 at 86.7%, the overall average cost-value ratio has dropped 29 points to 57.7% (see “Cost vs. Value 9-Year Trend,”).

High remodeling construction costs are only partly responsible. Project costs continue to drop, although more slowly: costs decreased 6.9% in 2009, 2.3% in 2010, and just 1.9% this year. Decreasing cost usually results in a higher cost-value ratio, except when resale value decreases even faster. And that is the case once again this year, when continued volatility in housing prices has pushed average project resale values down 6.0%. Though the rate of change here is also slowing, the decrease in resale value is more than enough to counter the positive effect of lower costs.

Some markets are performing better than others. The average cost-value ratio for cities in the Pacific region is 71.3%, due largely to higher resale values (see “Regional Comparison,”). The West South Central and the South Atlantic regions are also well-above average. High costs and low resale values keep remodeling return on investment below average in the Middle Atlantic and East North Central regions, while the West North Central cities rank lowest at 49.5%.

Remodeling Cost vs. Value Report 2011-12

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A sluggish housing market continues to affect remodeling return on investment, but the rate of decline is slowing, and some markets are showing signs of a recovery.

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Even in markets where remodeling activity is showing signs of recovery, homeowners have given remodelers smaller budgets to work with. Elsewhere, existing home sales and cash-out mortgage refinances, traditional stimulants to remodeling activity, have not yet rebounded, and homeowner uncertainty about job security, home equity, and the overall economy have stifled remodeling investment.

The Bright Side

That said, there is evidence that the future for remodeling is bright. Hanley Wood’s recent “Housing 360” research on consumer attitudes toward housing shows that 42% of homeowners believe it is a good time to remodel. (Hanley Wood publishes REMODELING magazine.) That number increases to 56% when household income is $100,000-plus, and it is 54% when home value is more than $500,000.

The research also suggests that tight credit is not a major impediment — 80% of respondents say they pay for remodeling with cash savings. And it confirms that 60% of home­owners 50 and older intend to stay in their homes through retirement, which will create demand for aging-in-place remodeling.

Replacements Still on Top

The Housing 360 research also shows that maintenance, repair, and replacement projects take precedence with homeowners. Cost vs. Value data confirm this once again this year, as replacement projects continue to perform better in resale value than other types of remodeling projects (see “Replacement vs. Remodeling,”). Seven of the 10 top-ranked projects are siding-, window-, or door-replacement projects and their cost-value ratio is an above-average 71.6%.

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, and the use of durable, low-maintenance replacement materials appeals to home buyers who increasingly are looking to reduce both the operational and maintenance costs of their homes.

Interior Remodeling

The Attic Bedroom project is in the top 10 for the third year in a row, despite being the most expensive project in that group, averaging $50,148 nationally. One possible reason for the high value placed on this project, which is ranked third overall (72.5%), is that it is the least expensive way to add a bathroom and bedroom, and it does so within the home’s existing footprint.

It is also worth noting that Minor Kitchen Remodel is fourth overall (72.1%), two places better than last year. At an average cost nationally of just under $20,000, this project is the interior version of a replacement and includes new cabinet door and drawer fronts and hardware, as well as new countertops and 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.

—Sal Alfano, editorial director, REMODELING.

Visit the official website of the Cost vs. Value Report to download a PDF containing side-by-side national, regional, and city data tables. Or get the updated 2011–12 Cost vs. Value iPhone app at the AppStore.