NEW YORK (MainStreet) — Strap on the tool belt and grab a power drill. More than half (57%) of homeowners have a home improvement project on their to-do list this year. And we’re not talking minor touchups or a quick coat of paint. More than one-third (36%) of homeowners plan to spend $5,000 or more this year on renovations. And 18% are stepping up and knocking more than $10,000 out of the park to dust off the old home plate, according to a Harris Poll conducted for SunTrust.
The planned projects are near evenly split between home updates (52%) and repairs (49%), with the most popular improvements including:
- Decks, patios and landscaping (43%)
- Bathroom remodels (29%)
- Kitchen updates (26%)
And while in past years tapping a home equity loan was the go-to method to fund such improvements, most consumers (59%) say they’ll raid their savings accounts instead. Other homeowners, buoyed with growing confidence in the economy, will pull out their credit cards (30%). Home equity lines of credit are favored by just 9% of those surveyed, while unsecured home improvement loans will fund the projects for 7% of the respondents.
A recent study by the Joint Center for Housing Studies at Harvard University says we’re entering boom times in home remodeling, with sales approaching $300 billion – the highest level since 2007.
“While homebuilding is many years away from a full recovery, the home improvement industry could easily post record-level spending in 2015,” the report says. Baby Boomers accounted for almost half of all remodeling dollars spent in 2013 but the nation’s largest generation is poised to make an even greater impact, according to the Harvard experts. “The key to future market growth is the Millennial generation," the report said. "While currently lagging previous generations in forming households and buying homes, the Millennials will eventually give a dramatic lift to home improvement spending. More immediately, the growing presence of Millennials in the rental market is encouraging property owners to invest in updates to their units.”
And Millennials are prone to knock out a wall or two. In 2013, homeowners under 35 put a third of their home improvement budget into DIY projects, nearly double the amount spent among all owners.
It stands to reason that urban homeowners shell out the most in home upgrades, as do residents on both coasts, where higher home values -- and incomes -- lead to greater home improvement investments. The Harvard study says that owners in the 50 largest metros spent an average of $3,000 on home improvements in 2013.
But are major updates a wise investment? The head of the Appraisal Institute, the nation’s largest professional association of real estate appraisers, says these days less is more.
“Homeowners will generally find that simpler, less expensive projects typically have the best return on investment,” Appraisal Institute president M. Lance Coyle tells MainStreet. “Some examples can include replacing a roof, garage door, entry door or vinyl siding. Other projects that homeowners might consider are installing a manufactured stone veneer, replacing windows or investing in minor kitchen remodels.”
Better tell the crew to stop digging that giant hole for the pool.
“One of the mistakes that homeowners sometimes make is improving their home beyond what’s comparable to the rest of their neighborhood,” Coyle adds. “You don’t want to own the only house in the neighborhood with some type of costly, high-end improvement that nobody else has. A typical example is installing an in-ground swimming pool that’s the only one in the area. It’s important to meet, and not exceed, what’s standard for the neighborhood, and to also consider how long you expect to live in the home.”
In fact, according to Remodeling magazine’s most recent annual cost versus value report, two-story additions, composite decks, and master suite and kitchen remodels are among the worst projects for home improvement ROI.
“Another mistake some homeowners make is customizing the house to a level that makes it undesirable to the typical buyer,” Coyle says. “This can include bizarre paint schemes or especially unique built-in features – like maybe a hot tub, or something of that nature.”
-- Hal M. Bundrick is a Certified Financial Planner and contributor to MainStreet. Follow him on Twitter: @HalMBundrick