March 22, 2011 8:13 am
RISMEDIA, March 22, 2011-Yet one more piece of data seems to suggest that homeowners are becoming more optimistic about the future. The Residential BuildFax Remodeling Index, a residential building and permitting database tracking 4,000+ cities and counties throughout the country, rose 18% year-over-year in 2010. After fourteen straight months of increase, it reached a peak of 103.8 in December 2010, the highest December number in the history of the index, which started in 2004.
The increase comes at a time when more and more homeowners are underwater, making the financing of remodeling projects more difficult. "We believe that many of these homeowners are drawing on their savings or other forms of consumer credit, such as credit cards to pay for the remodeling," said Bruce Hahn, president of the American Homeowners Foundation. "Anecdotal evidence that most homeowners are opting for less ambitious projects than in the past supports this view," he added. Another factor may be barriers to other alternatives. "In many markets it is very difficult to sell your home. Even if you can sell your home, financing its replacement may be a challenge because mortgage lenders have substantially tightened borrower requirements. If moving up isn't an option, improving your current home may be the next best alternative."
The West and South both saw better-than-average remodeling activity in December, with the South posting a four-year high and the West posting an index high. The Midwest suffered its usual significant November-to-December decline and the Northeast continues to lag all other regions while still showing signs of recovery. The BuildFax Remodeling Index for the Northeast was down 4.1 points (5%) month-over-month but up 1.3 points (2%) year-over-year; the South was down 0.6 points (less than 1%) month-over-month but up 9.1 points (12%) year-over-year; the Midwest was down 11.8 points (11%) month-over-month and down 0.1 points (less than 1%) year-over-year; and the West was up 2.9 points (3%) month-over-month and up 11.3 points (12%) year-over-year.
If a homeowner is lucky enough to have substantial equity in their home and good credit, financing a remodeling project through a new mortgage may make a lot of sense. Mortgage rates are at historic low levels and in many cases a homeowner who can do cash out refinancing will find themselves with new monthly mortgage payments that are lower than they have on their current mortgage. There's also hope for homeowners with limited equity in their home. Some lenders may be willing to base the allowed mortgage amount on the increased value of the home when the work is complete.
Homeowners need to be careful when selecting remodeling contractors. In good times and bad, complaints about remodeling contractors are near the top of both the Better Business Bureau's and the American Homeowners Foundation's complaint list. There are a number of steps you can take to reduce the risk. You should check the contractor's credentials carefully. Are they licensed and insured for workers compensation, property and personal liability? If in doubt, ask to see their insurance certificate. Do they belong to the National Association of the Remodeling Industry, the National Association of Home Builders Remodelers Council, and/or any of the more specific trade associations in the remodeling sector? That's a sign of commitment to the trade and to professionalism. Most also offer certification and/or management training and keep their members up-to-date on the latest products and techniques. Ask for recent references on similar jobs (employee and subcontractor turnover is often fairly high, so recent jobs are a reliable indicator of their current capability). Check their record with the Better Business Bureau while you're at it.
For all but the most minor jobs, it is especially important to utilize a comprehensive written contract. This will greatly reduce the likelihood of disputes with your remodeler. Most disputes arise over issues that were not decided in advance. Make sure it covers the description of the project, timetable, payment schedule, etc., with general provisions defining the responsibility of the contractor and the subcontractors, defects and correction, change order procedures, warranties, right to termination, and alternative dispute settlement mechanisms (since more than half of the costs of lawsuits represent legal fees, homeowners and contractors will almost always be better off with mediation, conciliation, and/or binding arbitration clauses should a disagreement arise).
Courtesy of the American Homeowners Foundation and the American Homeowners Grassroots Alliance, www.AmericanHomeowners.org.