Are Homeowners Still Hungry For Pricey Kitchen Makeovers?

With pending home sales at a six-year low and home prices flat, homeowners are reluctant to sink as much money into their kitchens as they were during the boom. However, they haven’t taken remodeling projects completely off the table. Even in a troubled market, many homeowners are convinced that it’s important to
update their kitchens at least somewhat to preserve resale value.

Approximately 7.6 million kitchens were remodeled in 2007, roughly 200,000 more than the year before. Most real-estate agents still recommend upgrading the kitchen, since that’s the room that can often make or break a sale.

Consumers are reluctant to take on major kitchen renovations because the resale value of housing has been shrinking since the end of the real-estate boom. In 2005, a major kitchen remodeling job (including items
like new appliances and cabinets) cost $43,862, and recouped 91% of its original price on resale. The same job in 2006 cost $54,241 and returned an average of 80.4%.

Less drastic jobs, such as changing out countertops and refinishing existing cabinets, bring better returns, but too, value is shrinking. A minor kitchen remodel cost $17,928 and returned 85.2% of its value in 2006; a year earlier, it cost $14,913 and recouped 98.5%.

While the current sub-prime troubles continue to pain the market, remodelers should focus their attention on existing owners who have been in their homes for more than five years. Although consumer lending practices have tightened, Marc Savitt, president-elect of the National Association of Mortgage Brokers, says that homeowners with a lot of equity and good credit still have borrowing power.

However, for owners who bought homes recently with little or no down payments or weak credit scores, home-equity loans or lines of credit are scarce.

To pump up business as the market slows, some remodelers are offering incentives. In Cape Cod, Mass., a remodeler is offering a deal similar to promotions offered by furniture stores: 180 days of free financing, with no payments and no interest.

In Bethesda, Md., another remodeler has come up with a loyalty program similar to airline frequent-flier programs: Clients earn "dollars" based on a percentage of the total cost of their project,here, which can be used to offset the cost of future projects or transferred to family and friends.

These tighter times are having an effect on how consumers prioritize a remodeling project. A Washington, D.C. remodeler says many of his clients are looking harder at energyefficient appliances and lighting fixtures because they save money over their functional life. Similarly, a Laguna Hills, CA remodeler reports that many of his clients are looking for longer-lasting products, as well as universally-designed plans that will accommodate homeowners as they age.