Cost vs. Value

Cost vs. Value

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Trends

For the second consecutive year, Cost vs. Value data show that the value of remodeling is up for all 35 projects included in the survey. This trend signals an end to the long slide in the cost-value ratio, which began to fall in 2006 and didn’t begin to rebound until last year (see, “Cost vs. Value 11-Year Trend”). For 2014, the cost-value ratio stands at 66.1%, a jump of 5.5 points over last year and the largest increase since 2005, when the ratio jumped 6.1 points to reach its high of 86.7%.

(The cost-value ratio expresses resale value as a percentage of construction cost. When cost and value are equal, the ratio is 100%; when cost is higher than value, the ratio is less than 100%; when value is higher than cost, the ratio exceeds 100%.)

Significantly, for the first time in four years, improved resale value of residential housing had more of an influence in the cost-value ratio than construction costs. A modest 2.2% increase in average national construction costs was more than offset by an 11.5% improvement in average national resale value. This reverses a trend that began in 2010–11, when construction costs dropped dramatically, but resale values dropped even more, driving the ratio down. The situation began to change in 2013, when lower costs were mainly responsible for across-the-board improvement in the cost-value ratio. While this was good news for the remodeling market, costs remained volatile and housing values had yet to stabilize. In what is perhaps the most positive sign in this year’s data, rising resale value is driving the overall market improvement.

Biggest Gainers

There is still some progress to be made before the remodeling market fully recovers, but the 2014 Cost vs. Value Report shows that the national average cost-value ratio is up more than 9%, with 15 projects improving between 10% and 28% compared with 2013 (see “Biggest Gainers”).The biggest gainer may reflect the market’s response to the year’s unpredictable weather and multiple large storms: Backup Power Generator, an $11,742 project that supplies electricity during a utility outage, increased 28% nationally to its all-time high of 67.5% in percentage of cost recouped, and jumped to 25th in the overall ranking.More important is the continued presence of several big-ticket projects among the biggest gainers. Attic Bedroom Remodel, with a national average remodeling cost of $49,438, gained 15.6% compared with 2013, reaching a cost-to-value ratio of 84.3% and moving from eighth to fourth in overall rank. Similarly, Basement Remodel, with an average cost of $62,834, gained 10.4% over 2013 to reach a 77.6% cost-to-value ratio, and move from 13th to 12th in rank. Both of these projects have been trending upward in recent years, possibly because, compared with building an addition, they represent an inexpensive way to add living space to an existing home. But the fact that their comparatively high initial cost is balanced by a higher value at resale than at any time since the peak year of 2005 signals a return of confidence in the value of remodeling.

Replacements

That said, replacements—especially door, window, and siding projects—once again outperformed larger discretionary remodeling projects, when judged solely by national ranking (see “ROI: Replacement vs. Remodeling”). Entry Door Replacement (steel) is once again ranked first, as has been the case since this project was introduced in the 2009–10 report, and is the only project to return more than 90% of cost (96.6%). Low initial cost combined with the positive effect on curb appeal is likely responsible for the high ranking. This is also true of the midrange and upscale versions of Garage Door Replacement, which ranked fifth and sixth, respectively.

At the next cost level, nine of the 14 projects with costs in the $5,000 to $25,000 range are also replacements. (Since the introduction of several low-cost projects to the survey, the Cost vs. Value Report has presented data in four cost categories, making for a better comparison among projects of similar size.) This includes all three Siding Replacement projects, led by Siding Replacement (fiber-cement), an “upscale” project ranked first in this category and second overall, with a cost-value ratio of 87.4% (a 10.2% improvement over 2013); and all four window replacement projects, led by wood and vinyl “midrange” projects with cost-value ratios of 79.3% and 78.7%, respectively.

Read entire article at http://www.remodeling.hw.net/cost-vs-value/2014/trends

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