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Craig Greene: Home-Remodeling Market Beginning to Stabilize

Owners give up high-end discretionary improvements to focus on maintenance and energy efficiency

During the housing boom, remodeling expenditures — including maintenance, repairs and improvements to rental and owner-occupied homes — more than doubled to an estimated $326 billion from 1995 to 2007.

In recent years, remodels were financed with home-equity loans and cash-out refinances. Owners extracted an average of $450 billion a year in home equity from 1999 to 2008 and reinvested more than 25 percent of extracted equity into home improvements. Because of the recent economic downturn, remodeling activity has shifted from high-end discretionary improvements to those that maintain structural integrity as well as generate cost savings.

Although residential remodeling remained relatively weak during the third quarter of 2009, remodelers are starting to report that conditions in their markets are stabilizing, according to the latest National Association of Home Builders’ Remodeling Market Index.

In the most recent report, the current market conditions index rose to 39.8 from 38.1. The index of future indicators jumped to 38.7 from 34.2. An index reading below 50 indicates negative sentiment about the remodeling market. The RMI has been running below 50 since the final quarter of 2005.

As the home-remodeling market improves, the Joint Center for Housing Studies of Harvard University has identified three areas of growth:

» The increasing need to upgrade the rental housing stock — nearly 10 percent of rental inventory in the United States was considered structurally inadequate in 2007 and in need of remodeling.

» Higher energy prices and greater environmental awareness, which will increase the demand for green remodeling projects.

» Continued growth in improvements spending by foreign-born homeowners — their spending levels have grown nearly 13 percent per year since 2000, well in excess of the 7 percent growth by native-born households.

— Craig Greene is a senior loan officer at Prospect Mortgage, 3916 State St., Suite 100, Santa Barbara 93105. He can be reached at .(JavaScript must be enabled to view this email address) or 805.898.4211.

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