FEBRUARY 28, 2018 • Volume 13 • Issue 9
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DEAR MONTY
Will the real estate market crash?
RICHARD MONTGOMERY
R
eader question: Some people fear another real estate market crash. We see the real estate market has recovered in many markets. We are considering selling our current home and buying or building another house. With these conflicting opinions, it is difficult to figure out whether to go ahead. Do you think the housing market will experience a significant correction soon?
Monty’s answer: To look into the future direction of the real estate market is complicated. It is for this reason that I am uncomfortable making predictions about the course or the condition of the real estate market. Rather than predict how the market will perform, a discussion on the effects of the market moving, either way, maybe more helpful for you than a prediction.
Markets move in both directions There have been dips in home values as long as records of real estate activity have existed. The 2008 meltdown, which is the one most people remember, did not affect everyone. The homeowners that were affected were not affected equally. According to the American Community Survey (ACS) data, some
groups suffered more than others. Homeowners most impacted were on both coasts, people between the ages of 26 and 34, wealthy people, and Hispanics. The ACS is a service of the U.S. Census Bureau. People who owned homes for years, people with substantial equity, and people with regular income or other means that retained ownership of their home through the meltdown were unaffected. If some of these people live in an area that has not entirely recovered, they may yet be affected if they sell before the recovery is complete.
Perspective is important There are different estimates as to the total number of foreclosures since 2008. One approximation that is common is “over 5 million.” Five million is a large number, especially
if it were multiplied by the individual foreclosure losses, which totals over $1 trillion. The interesting comparison here is the total number of single-family homes in the United States, according to the U.S. Census Bureau is over 76 million homes. So while 5 million foreclosures is a large number, it represents a relatively small percentage of the total number of homes.
The effects of changes in the housing market If home values rise, your net worth increases, and if home values fall, your net worth decreases. Your decision is more related to your judgement of your personal situation than the condition of the market. Ask Monty questions at DearMonty.com.
CURB APPEAL
Improving it adds the most resale value to a home, reports say By Jim Weiker More Content Now
A
mericans are expected to spend a record $340 billion on remodeling this
year. Oh, but where to spend all that money? If you’re planning to live
in your home for decades to come, spend it where you’ll enjoy it. But if you’re thinking of selling, there’s a different answer. Homeowners are most likely to get their money back on very visible, relatively inexpensive improvements, according to two recent studies that seek to measure return on investment
BIGSTOCK
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for home projects. One of the reports, called the Cost Vs. Value study, concluded that adding a new steel front door and a new garage door may actually add more in sales price than what they cost. Adding stone veneer to an exterior comes close, returning an estimated 97 percent of its cost. “‘Curb appeal’ projects — changes to doors, windows and siding — by and large generated higher returns on investment than work done inside the home,” the report stated. “Meanwhile, projects that called for replacing something, like a door or window, scored higher among real estate pros than did remodels.”
Similar conclusions were reached by the other report, published by the National Association of Realtors and the National Association of the Remodeling Industry. The study, called the Remodeling Impact Report, found that homeowners get the most bang for their buck with new roofs, new wood floors, refinished wood floors and (again) a new garage door. Both studies compare builders’ estimated costs of projects to real-estate agents’ estimates on how much the projects would add to the price of a house. While spending money on more routine improvements yields the best returns, lavish
discretionary projects don’t fare as well. The lowest return on investment come from a new patio and an “upscale” bathroom or master suite addition, according to the Cost Vs. Value Report. The Realtors’ report came up with a similar lineup: A new master suite, a new bathroom and a remodeled bathroom yielded the lowest returns. In fact, as the Realtors’ study finds, agents almost never recommend big homeimprovement projects. Only 2 percent of agents, for example, recommended finishing an attic or basement before selling a house, according to the report. Instead, agents say homeowners are better off showing the house they have in its best light instead of trying to make it a new house. “The thing that gets the most bang for your buck is to declutter everything,” said Jill Rudler, a Keller Williams Excel agent in Westerville, Ohio. “Take 50 percent of what you have and remove it. The second thing is to paint. It’s inexpensive and will give a nice clean, fresh look to the weariest of houses. And replace any worn floor covering. The last you do is a deep cleaning.” If a piece of the house is broken or so dated that it’s a clear distraction, homeowners might also consider replacing that. Homeowners who don’t care about return on investment can enjoy remodeling simply to make their home more livable and pleasant. The Realtors study found that 75 percent of homeowners said they wanted to spend more time in their home after remodeling. When asked to rate the “joy” remodeling projects gave them on a scale of 1 to 10, homeowners gave the 20 projects an average score of 9.6.
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