Remodel Home?

Question: We are currently faced with a dilemma. My wife and I bought a home years back with the eventual assumption that we would outgrow it and have to move into a larger place. Since that time, we have had two kids and fallen in love with the neighborhood. Our kitchen is outdated, with buckling countertops, our furnace is over 30 years old, and we've got no room to store clutter that comes along with kids. (Legos can be particularly painful to bare feet.) We'd really like to stay put and get an addition and replace the dated things that need replacing, and have a place for storing everything. Our worry is now the best time to do these things? The economic down turn... or recession has us concerned. We have very little debt, other than the current mortgage. We are able to pay our bills and save a little for retirement and college for the kids. Are we making the right decision to add on to the house? Rob, Bel Air, MD.

Answer: Whew, I can relate to the pain of walking on Legos. I think the current housing turmoil means more people in circumstances like yours will pick remodeling over moving. (Plus, as you say, you love the neighborhood.) The remodeling industry boomed along with the surge in real estate prices, according to Harvard University's Joint Center for Housing Studies. The remodeling market in 2007 breached $290 billion, up from an annualized $85.3 billion in the final quarter of 1997. It's during these boom years that remodeling horror stories became common currency among homeowners, from contractors doing shoddy work to walking away from incomplete jobs. Although the remodeling market has held up well compared to the housing market, activity will slacken if history is any guide. While the cost of drywall, composites, and other materials is up, labor is plentiful and many contractors are eager to keep their crews working. There is more room to negotiate than before, but I think the real gain is better work for the price paid.

That said, if you do go the remodeling route remember that it will only "pay" as a long-term investment. You'll lose moeny if you end up moving soon. The general rule on renovations is that you will only recover about 40% of the cost of any work done, with kitchens and bathrooms having the highest return on your money and luxuries like swimming pools the least. I'm sure you've already gone over the details with your contractor, but you can check out the numbers at Remodeling Online . Again, it's clear you don't want to end up with too much debt, so prioritize the project and figure out what you might want to do later. So, assuming you stay conservative with your finances, owning a remodeled home in a neighborhood you love will add to the quality of your family's life. And that's worth a lot.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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