Is the Weak Housing Market Altering Our Idea of Home?

Budget-minded remodeling and smart design are gaining popularity in this slow economy.

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An American Institute of Architects survey shows that business conditions at residential architecture firms remained very weak in the third quarter, partly due to seasonal year-end slowing. But data were also consistent with a market that is still bumping along the bottom of a protracted cyclical downturn, the trade group said in a release. All major residential construction sectors remain in decline, with second and vacation homes rated as the weakest.

Conversely, most residential architects rate the home-improvement market in their area as healthy. Some of this strength comes from owners who have decided not to trade up, and have instead chosen to remodel their current homes, the AIA says.

[See How to Talk With an Architect.]

Even remodeling budgets look to remain conservative. Home-improvement spending will remain tepid through the first half of 2012, according to the Leading Indicator of Remodeling Activity released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University.

"Absent a more sustained upturn in the broader housing market, particularly in the sales of existing homes, there's not much to propel growth in home-improvement spending," said Kermit Baker, director of the Remodeling Futures Program, as part of the report's October release. "Homeowners are continuing to undertake smaller jobs, but are still nervous about larger discretionary projects."

Remodeling return-on-investment continues to ease. Since peaking in 2005 at 86.7 percent, the overall average cost-value ratio has dropped 29 points to 57.7 percent, writes Sal Alfano, editor of Remodeling Magazine, as part of his publication's annual Cost vs. Value Report on remodeling investment return trends.

Project costs continue to drop, although more slowly: Costs decreased 6.9 percent in 2009, 2.3 percent in 2010, and just 1.9 percent this year. Decreasing cost usually results in a higher cost-value ratio except when resale value decreases even faster. And that is the case once again this year, when continued volatility in housing prices has pushed average project resale values down 6 percent, Alfano says.

Homeowners should always carefully scrutinize remodeling expenses, but should be aware that in the current market, they may not recoup as much from an upgrade as they thought. Second, with resale so uncertain, remodeling to fit family needs (and not trying to guess what future buyers might like) may make sense now more than ever.

[See When DIY Ends Up Costing More.]

Author and architect Dickinson says that he's hopeful that consumers will emerge from the housing slide better educated and empowered to demand strong design, home customization, and à la carte pricing disclosure over standard builder and remodeling packages, whether a consumer is building new, customizing a resale, or reworking what's familiar. "What home should be about is contact with the outdoors or a nighttime gathering place, not a pod of hermetically sealed processed air," he says.

For homeowners mulling changes that can turn where they eat and sleep into a home they'll want to keep for a long time, Dickinson raises these questions and tips:

• Expand without adding on; entire walls don't always have to be removed to "open up" a space.

• Think about how interior space relates to the outdoors; big views should have big openings.

• Sometimes, walls are a good thing—and hide lots of clever storage.

• Style is not a religion.

• Color is cheap.

• Empty nesters can often re-nest in the same spot.

• Homeowners should ask: Will I really use the square footage devoted to a "master suite"?

• Projects from $500 up without a plan are a risky roll of the dice.

• Don't forget hallways and landings.

• Design front porches that are actually usable.

See more at www.stayingput.com.