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Derby Thread | Main | Overnight Open Thread - Commie Day Edition
May 01, 2010

Old And Busted: House Flipping
The New Hotness: Hunkering Down For The Long Haul

This does not bode well for a fast recovery of the construction or real estate business.

...the forces driving today's action couldn't be more different from those during the boom. Back then, people wanted to renovate their places so that they could trade up to bigger homes, or because their home equity was soaring and they wanted to reinvest some of the spoils.

Now, the opposite is happening: Many people who bought during the boom years are accepting the reality that they won't soon be swapping up for a sybaritic spread. Their mortgages may remain above water, but after years of falling home prices, their equity is so low that the transaction costs of buying a new house would leave little for a down payment...

In short, they are stuck.

...So these people are making their homes more comfortable for a longer-than-expected stay. Setting aside old calculations of how much a particular improvement will add to resale value, they are making smaller tweaks that can make a big difference in livability. You might call it "psychological return on investment."...
This trend is bad news for the big home builders like Toll Brothers/Hovnanian/Lenar, and relatively good news for smaller local GC's willing to take on modest remodel projects.

I'll certainly vouch for the notion of "psychological ROI". Doing all the electrical upgrades on my own crib recently has dramatically increased its usability and utility. There's very little that annoys me about the place anymore in that regard.

I'm doing some similar electrical usability work for a neighbor who has decided they're going to be in their house for a while. Not to the extent that I did with my joint of course, since I value my time at $0.00 when I work on something I want, because I want it.

Still, there were a number of modest material cost, "high impact" things we've done like adding recessed lights over the kitchen sink, a light for the pantry and shower (which were like caves), and adding an additional counter top circuit since they were tripping a 20A breaker constantly and adding some extra lights in the attic.

Its been shocking the number of egregious code violations I've fixed along the way. The electrical inspectors in Palm Beach must have passed houses based on the thickness of the envelopes they were slipped by the builders.

So, how long can this "modest remodel" trend continue? At some point people will have gotten everything done they wanted done. A couple of years? Five at most? At some point budgets will be expended and/or everything done. Undoubtedly a lot of this modest remodel work will be done on a cash basis or by the homeowner if they're capable. I don't see this as a long term economic engine for the economy, rather an indicator that people who are still employed or retired are realizing the lost decade(s) are upon us.


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posted by Purp at 07:53 PM

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