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Wednesday, July 23, 2008

Now May be the Best Time to Remodel

Many clients have asked us if now is a good time to remodel. From an emotional standpoint the answer is no. It is easy to understand this point of view: the news media reports disheartening stories that scare and intimidate us. However, from a rational standpoint, now may be the best time to remodel. Below are several key points that you may find useful as you continue to consider remodeling your home.

1. Local Housing Values

Every housing market has its own conditions, and every market reacts to those conditions differently. The following graph, provided by Zillow.com, illustrates values in the Charleston market.

Zillow.com tracks every recorded sale in every major market and provides accurate statistical analysis. The national news media has reported that housing values have “plummeted” by 13% recently. What they do not tell you is how well those same homes appreciated in the years prior to 2008. In the graph above, you can see that a home purchased in early 2000 in the Charleston market for $100K would have appreciated to nearly $215K over a 6 year period, held constant for another year, and then adjusted to an approximate value of $195K. That equates to an annualized appreciation of 7.5%, which is very good! You can also see that although Charleston housing values made a downward market adjustment in early 2007, they have begun to increase in value once again.

2. Comparative Housing Values

Charleston housing values have held very well in comparison to other communities. This is because Charleston continues to be a favored destination to live, work, and retire. Many other markets have declined substantially as the populous leaves cold northern climates for more favorable destinations such as Charleston. This creates demand, which keeps our housing values strong.

3. Cost of Construction

The cost of construction materials has held relatively constant over the past year, with a slight decrease in recent months. But as the price of oil rises, construction materials can do nothing but increase. The following graph, provided by CBUSA, shows the condition of construction materials pricing.

CBUSA, a builder buying group, tracks construction material costs for major metropolitan markets on a monthly basis. You can see that prices have fallen in all of the major markets, as well as in Charleston. This is due to weaker demand coupled with a backlog of vendor inventory. The red line indicates lumber prices at the wholesale level. You can also see the sharp increase in prices due to the rising cost of oil. As soon as local vendors deplete their inventories, you can expect to see an increase in construction materials prices in direct correlation to inflation and rising oil prices. Projects started now will definitely cost less than those started in the future.

4. Interest Rates

Interest rates have probably gone as low as they are going to. With continued inflation and upcoming elections, the Federal Reserve will likely suspend further rate cuts and may even begin raising rates again to curb inflation. Finance costs will likely increase in the months and years ahead.

5. Availability of Qualified Tradesmen

Construction activities from 2000 through late 2005 were very robust in Charleston, which created a severe labor shortage of qualified tradesmen and specialty trade contractors. Now that the market has returned to a normal pace, specialty trade contractors are more readily available, and some have reduced their pricing to attract more business.

It is a given that construction prices are going to increase with time. If you are interested in pursuing a remodeling project now, we can help control costs through purchasing commitments made before price increases occur.

I hope that you have found this informative. If any of the staff at Classic can answer your questions or be helpful in any way, please do not hesitate to contact us.

1 comment:

James Fillion said...

This is great information! This will especially motivate me to start looking at my hardware stores for inexpensive ways to remodel my home. I recently researched the Charleston real estate market, and found a great deal on a home near Charleston College. I want to remodel with a Victorian aesthetic. Lets see if I am up for the task. I will continue to follow this blog for your great insight. Thanks