The New Rules of Remodeling
Wall Street Journal
By M.P. McQueen
...You may have noticed the lines at home-improvement stores getting longer or heard the whirring of buzz saws in your neighborhood. After years of economic recession and housing-market malaise, people are starting to fix up their homes again...
...A surprising number of people fall into the category of being above water on their mortgage but anchored to their property. According to First American Core Logic, at least 24.5 million borrowers in the U.S. have home equity of less than 25%, and of those, 13.2 million are above water. Considering the 9% in commissions and fees that typically come with buying and selling a house, as well as the typical 20% down payment on the new one, it is easy to see why people aren't house-hopping like before. This applies even to affluent professionals. Paul Sorbera, an executive recruiter in Greenwich, Conn., is seeing it firsthand among his clients. He says many financial-services executives "bought $2 million homes in the good times and have $1.3 million houses now because of the price decline. They have some money in the bank and can afford their current living standard, but moving is very impractical for them."
Economists, whose models often assume the rationality of hypothetical consumers, say remodeling makes sense for such people. "If they don't have a lot of equity in their houses and can't move, they should have a propensity to improve rather than move," says Richard K. Green, director of the University of Southern California's Lusk Center for Real Estate. "When you renovate, you save a lot of transaction costs."...