Distressed Properties Spur Remodeling Rebound

Reprinted from REALTOR® Magazine, January 27, 2011 with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright 2011. All rights reserved.

The U.S. remodeling industry is “poised for growth” and a return to more normal levels, but it won’t be coming from the industry's traditional drivers, according to a report by the Joint Center for Housing Studies (JCHS) at Harvard University. The remodeling industry has faced double-digit declines in activity since its peak in 2007.
The overall aging of homes and home owners eyeing the potential income gains is expected to provide a boost to the remodeling market, but the major drive leading the rebound in the remodeling industry is expected to come from distressed properties, the report says.

Instead of reducing the price on a property, more lender servicers who manage aging REO portfolios are considering remodeling and raising the price, says Dale McPherson who has more than 30 years in the mortgage industry. The servicers are growing tired of watching investors repair and remodel these properties and sell them at a much higher price — now banks want to cash in, too.
Remodeling distressed properties has the potential to cut the cost on losses of the lender servicers as well as help home owners benefit from remodeling margins too.
Kermit Baker, director of the Remodeling Futures Program at JCHS, says that the slumping housing market has caused “lower household mobility” and as such, more home owners will likely now be looking at what home improvements they can make that will offer longer paybacks, such as energy-efficient retrofits.
In the next five years, the focus of remodeling spending will shift from upper-end discretionary projects to replacements and systems upgrades, the report also notes.

Source: “ Remodeling Poised for a Sharp Recovery,” National Mortgage News (Jan. 18, 2011) (login required)