Plan ahead: Remodeling spending may dive further

Posted by Woodrow Aames ~ August 10, 2011

Homeowner spending on remodeling and home improvement projects is expected to take a major dive going into 2012, according to the Joint Center for Housing Studies of Harvard University. The plunge is daunting, given the small bubble of increase during the spring of this year. At the same time, a consumer slowdown on ordering projects from contractors may force skilled professionals to drop their prices.

The Harvard Study released in late July uses The Leading Indicator of Remodeling Activity (LIRA) to estimate homeowner improvement spending based on short-term quarterly data and forward-looking estimates. And the estimate for early next year is grim, with projected spending taking a downward hit of more than four percent.

Numbers last spring had shown hope as remodeling efforts rose to $118.3 million over the $110.8 million spent in the first quarter. The Harvard center blames the projected downturn (estimated to drop by $8 million in the last quarter of 2011) on falling consumer confidence in investing in any discretionary spending. Of course, as they say on television, your experience may vary.

Can home improvements be sensible in this economy?

The answer depends on how badly your home needs attention and whether you want to capitalize on the misery projected for those who work in the building and repair industry. Kitchen and bath design writer Jamie Goldberg makes the following case for making kitchen or bath upgrades you can afford.

Goldberg, writing with foresight in the Gold Notes blog a year before the drop, still makes sense today. She points first to the probable glut in available contractors with open calendars. Further, she says, homeowners looking at remodeling projects will benefit from a drop in costs for goods and services, getting some leverage on negotiating prices. You'll still have to evaluate contractors carefully because some less-than-scrupulous or fly-by-night operators may really undercut bids.

The days of doing large-scale additions and fixing up the home for a rapid flip are probably over in most parts of the country. I have a friend living in Sidney, Mont., who says her home will sell easily after she finishes basement conversions and other improvements because of the oil boom there. But Sidney is an unlikely model for communities nationwide.

If you want to have reasonable expectations, schedule only right-sized home improvements for the immediate future. When you consider that small-scale interior home improvement projects are typically scheduled for winter months, you might find great deals on labor and materials when the projected slump begins in the New Year.

But remember that the economy is fickle. Don't shoot the messenger!

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