Because most people remodel for personal reasons and not what it may or may iot return in the future.I would also say most of the remodeling(more then just paint and simple updates)occur without the thought of selling soon..I am a firm believer in remodeling/renovating for your own enjoyment,and don't concern myself about how much "return" i get ,if any...

I think that to some extent the remodeling boom in the last 4 or 5 years was tied to homeowners using the equity in their homes to pay for the expense of remodeling. With mortgage market tightening and home values declining or stagnating in many areas of the country, there is less money available for many to pay for remodeling.

Of course, I could be completely wrong too.

"Because most people remodel for personal reasons and not what it may or may iot return in the future.I would also say most of the remodeling(more then just paint and simple updates)occur without the thought of selling soon."

If this is true, why did a 'bubble' seemingly occur in remodeling at the same time as the housing bubble? Wouldn't remodeling (if what you say is true) remain constant over time (and not be deflating now)?

It would be interesting to examine the ratings of channels like HGTV over the past 8 years too...

I think when the economy is iffy, people tend to be more conservative and put things off. With retirements dependent on the stock market it scares people whether they are ready to retire or not. Plus we are again losing more jobs in my midwestern town.
And I think jhug has a good point too.
Then there are people who would be buying and remodeling their new place who are waiting. They aren't remodeling their old place and won't remodel till they can buy a new one.

I too think that homeowners were tapping the equity in their homes to do remodeling, now that housing values are down, not as much equity, therefore not as much home improvement. I can honestly tell you that as avid DIY'ers, our home improvements haven't slowed down. But we've never tapped our home's equity and we do our improvements for our own enjoyment, although we do keep an eye on which improvements are financially wise if we have to sell.

i will agree that financing played a large role in remodeling,but still don't believe people did it for $ for $ return on improvements...That said, i also don't tap equity to do projects, and haven't stopped because of declining home values..Currently have several remodeling projects underway

Good thoughts, I'm sure that harder HELOC reqs are hurting the remodel market. But what about this quote: "Studies back up those concerns. Average returns on a home remodeling project have fallen from 82.5 percent in 2003 to 70 percent last year."

Why is the return on investment losing ground? I can't wrap my head around this one. Is it because everyone (and their brother) has granite now (LOL)?

skylyn: "Is it because everyone (and their brother) has granite now (LOL)?"

Strange as it may sound..it could be part of the reason. Once something becomes ubiquitous, it tends to no longer command a premium.

In addition, the highest return on a renovation (excluding additons, which may come under a different rule) is within the first year or two after it is completed. After, that as it ages, the return decreases...especially if the reno was done in a very trendy way..which tneds to look dated sooner than later.

Another point may be that wiht the credit squeeze, the average homebuyer can no longer qualify for a gazillion dollar mortgage...which means the offers that they make are less...and if the seller needs to accept the offer, he or she is not making the return that they would have if the buyer could have paid more...

Last but not least, in many instnaces, I think the return percentage has been overated to a degree...as many renovations are taste specific..and if a buyer sees that they will need to change out the granite or the tile flooring simply because the existing materials has no appeal to them, they are not going to pay a premium to do so...

IMO..too many folks were convinced that an update will command more money; few were told that just because its new, that does not mean that everyone will like it..and continue to pay more for it..especially in a slow or depressed market.

Press here is starting to report and upswing in remodeling

"...As a result of the decline, several local improvement companies have said they are seeing tons of renovation work as homeowners sit tight and fix up what they have.

"People are improving their homes more than buying new homes," said Hamed Alaghebandian, co-owner of Madison Interiors in Odenton. "Also people are tending to go a little more green and save money on that side," he said, adding that his business features a model home with environmentally friendly "green" products."

"Why is the return on investment losing ground?"

Because a LOT of home improvement is subject to taste _and_ many home improvement items are EXTREMELY expensive (for what you get).

That $10,000 super-duper-deluxe-built-in fridge (with surface-du-jour) just won't be that ($10,000) attractive to prospective buyers.

Why is the return on investment losing ground? I can't wrap my head around this one. Is it because everyone (and their brother) has granite now (LOL)?

I think it's because return on investment was artificially inflated by rising house prices before. I saw it on those house flipping shows all the time - someone would run 4 months and $100k over schedule on their remodel, but in that time houses had appreciated another $200k so the person who did nothing but screw up was actually better off holding the house for longer than flipping it quickly and selling it 4 months ago.

Now house prices are stagnant - even dropping. So if it takes you 4 months to do a remodel, your house might be worth less than it would have been 4 months ago - therefore the rate of return on your remodel seems lower.

skylyn: "Home improvement store giant Lowe's Cos., for instance, is predicting its same-store sales this quarter will be off 3 percent to 5 percent from a year ago. And Home Depot Inc.'s profit in its last quarter was down more than 25 percent." So, was there a remodeling bubble tied up with the general housing bubble?

Well, let's see. Most department store companies posted abysmal results last quarter. Does that mean there was a clothing bubble?

Circuit City also posted much lower earnings. Was there a TV and computer bubble?

Even McDonald's had lower than expected earnings. Hamburger bubble?

No, it is called a slowing economy and most likely the beginning of a recessionary period. (Which, by definition, is never declared until after the fact.)

I wonder if the statistics have been sorted out as to who's doing what or not - e.g. could a lot of the recent years' money have come from people deliberately flipping houses (and spending on fix-ups) vs. people just fixing their own homes to live in? Because now that flipping will probably lose the attraction it had to a large extent as the market's so bad, there's going to be at least a small gap in people buying supplies.

I just read where Starbucks is laying off 600 employees due to slowing coffee sales. I guess we'll have to add a coffee bubble to the hamburger bubble to go along with the so-called remodeling bubble.

In one sense I think it can be fairly argued that there was a "remodeling bubble" - in the sense that the psychology of the remodelers has changed. During inflationary part of the housing bubble, remodelers gleefully plowed ten or twenty thousand into a kitchen on the expectation of making twenty or forty thousand extra when selling. Now, people are getting real and plowing five or ten grand into a kitchen because they like to cook and to have a nice kitchen. Some people's individual make-up never got into the "bubble thinking" in the first place, and some people probably never left it. But a lot of people did leave that kind of bubble thinking behind, and thus the home improvement stores are seeing sales declines.
The point above about the general economy is valid, but shopper's psychology is also a driver for that argument too.
I think one of the first declared "remodeling bubbles" was the tail end of 2001 and most of 2002 - all the blather about the "nesting instinct kicking in, in a post 9-11 world". Yeah right. I started plowing a lot of money into HD/Lowes in 2002 because I just bought a house in jan 2002 that needed a lot of work. 9-11 had nothing to do with it. Anyhow, I think the consensus of the board is that there is no such thing as a remodeling bubble, but for myself I think the OP deserves some credit because there can be similarities in the psychology driving remodeling decisions and bubble markets.

"Why is the return on investment losing ground?" Because the raw materials for renovations are not going down, but up...but housing prices are going down. That'd be my guess.

I know several people personally who were affected by ARM adjustments and simply decided that they didn't need something as badly as they thought they did. They're putting their expensive houses on the block and buying more modestly with fixed rate mortgages, and they don't expect to get out of their old homes anywhere near what they expected when they got their expensive mortgages, so the clean-up/fix -up is bare essentials to get their old houses sold and ASAP. It's like watching the stock market steadily drop, they get to a point where they think they'd better fold.

Home Depot losses? Well, seems they were making a major push to move into rural markets, and typically place their stores as closely as possible to existing Lowe's, who had existing customer bases. You gotta pay the piper sometime and I think it's just catching up with them. There is only so much market out there and you either move where there is more market than suppliers, or you hope to catch a piece of the existing market share from somebody else. They moved in this area with a lot of promises, and the "more jobs" bought them an in. There aren't more jobs, because the market is small and no new shoppers came in. So, they just trade employees and a lot of people who expected to work full time have been caught in the typical retail, no customers, cut hours dance.