This Week in Real Estate: January 22, 2018

Prior to investing in a home improvement project, would it be beneficial to know which remodeling projects net the highest return on investment (ROI)? Remodeling Magazine released This Week in Real Estate it’s Cost vs. Value Report for 2018. Below are a few highlights from the third week of January that influence our business:

* Cost vs. Value: The Home Improvement Projects With The Highest ROI in 2018. Remodeling Magazine’s newly released Cost vs. Value Report for 2018, which measures the average cost of 21 popular remodeling projects and their average resale value one year later, found that average return on investment (ROI) for home improvement projects dipped across the board, with “upscale” projects taking the biggest hit. Garage door replacement has the highest ROI at 98.3 percent (up from 85 percent year-over-year). Backyard patio jobs garner the lowest ROI, at 47.6 percent (down from 54.9 percent year-over-year). The reason for the sweeping decrease in ROI isn’t immediately obvious, but Remodeling magazine’s editor-in-chief (and manager of the report) Craig Webb notes that it’s likely related to the strength of the housing market currently. However, a silver lining from the report relates to when the data was compiled. Remodeling magazine put all the cost information together before the country was struck with several natural disasters, including massive forest fires and several hurricanes. Since then, building supplies and the price of skilled labor has increased, but that’s expected to change over the course of 2018. As a result, expect to see the ROI of most of these projects level out by the end of the year. Despite these events, some longtime trends continued through the new year. Remodeling is still far more cost-effective than replacement, but, according to real estate pros, replacing is still the way to go. This year, there’s a 20-point difference in ROI: 76.1 percent for replacement jobs, versus 56 percent for remodeling. Nationally, when it comes to renovation ROI, curb appeal still wins out.


* Builder Confidence Remains Strong as New Year Starts. Builder confidence in the market for newly-built single-family homes dropped two points to a level of 72 in January on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) after reaching an 18-year high in December 2017. Builders confidence remained strong given changes to the tax code will promote the small business sector and boost broader economic growth. Nonetheless, home builders continue to face building material price increases and shortages of labor and lots. In a recent NAHB survey, 84% of builders cited concerns regarding cost and availability of workers as a key challenge for 2018, matching the 84% who cited rising building material prices. The HMI gauge of future sales expectations has remained in the 70s, a sign that housing demand should continue to grow in 2018. As the overall economy strengthens, owner-occupied household formation increases, and the supply of existing home inventory tightens, we can expect the single-family housing market to make further gains this year. The three HMI components registered relatively minor losses in January. The index gauging current sales conditions dropped one point to 79, the component charting sales expectations in the next six months fell a single point to 78, and the index measuring buyer traffic fell four points to 54. Looking at the three-month moving averages for regional HMI scores, the West rose two points to 81, the South increased one point to 73, the Midwest inched up a single point to 70 and Northeast climbed five points to 59.


* U.S. Foreclosure Activity Drops to 12-Year Low in 2017. Attom Data Solutions released its Year-End 2017 U.S. Foreclosure Market Report on Thursday, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 676,535 U.S. properties in 2017, down 27 percent from 2016 and down 76 percent from a peak of nearly 2.9 million in 2010 to the lowest level since 2005. Those 676,535 properties with foreclosure filings in 2017 represented 0.51 percent of all U.S. housing units, down from 0.70 percent in 2016 and down from a peak of 2.23 percent in 2010 to the lowest level since 2005. “Thanks to a housing boom driven primarily by a scarcity of supply, which has helped to limit home purchases to the most highly qualified — and low-risk — borrowers, the U.S. housing market has the luxury of playing a version of foreclosure limbo in which it searches for how low foreclosures can go,” said Daren Blomquist, senior vice president at ATTOM Data Solutions.
Have a productive week.

Jason

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