Do Better Deals for Homeowners Mean More to Spend on Remodeling?

The good news, sort of: Since peaking in the fourth quarter of 2005, home prices have plummeted, triggering a downward spiral in mortgage interest rates and — big sigh of relief — a promising rebound in home sales and refinancing.

The logical question: Do better deals for home buyers mean more to spend on remodeling?

The reality: It’s too soon to tell for the next wave of buyers, but the latest wave affirms a clear No. Some 40% of recent home sales are foreclosure and other “distress” sales, according to Moody’s Economy.com economist Mark Zandi. In at least some cases, hypothesizes remodeler Darius Baker of D&J Kitchens and Baths, in Sacramento, Calif. “They’re getting into the house cheaper because now they can afford it, but they don’t have extra money to remodel.”

Besides first-time owners who can finally afford to buy, many recent purchasers are investors capitalizing on depressed prices, says consultant and former remodeler Shawn McCadden. “The kind of work that will be the mainstay for the next year is aimed at maintaining value, as opposed to adding value,” he says. “The question for many remodelers is: How are you going to retool yourself to do improvement work?” Boston real estate agent Stephen Marcus suggests that remodelers connect with buyers by nurturing relationships with bankers and real estate attorneys. “We’re back to real real estate,” he cautions. Buyers “have got to have that 20% or 25% downpayment now,” and many are, he says, investors wanting to quickly spruce up their properties for rent or resale.

But that kind of work isn’t for everyone, and some remodelers are steering clear. In San Diego, the median price of single-family detached homes dropped 31% in the 12 months ending in October, while the number sold increased 114%. Rather than targeting those new buyers, Jackson Design & Remodeling is marketing to “homeowners who have lived in their homes for at least seven years and have built up solid equity,” says Todd Jackson, president and CEO.

Affluent buyers like bargains too, of course. In Mercer Island, Wash., a client of Peter Davis Builders recently purchased a new waterfront home “at a significant discount,” says owner Peter Davis. “It may be because of that that he’s envisioning a $400,000 project.”