Remodeling trend: Practical — not luxury

We're at the end of an era in home renovations. The expensive projects during the housing boom are giving way to more dollar-conscious ones as the economy recovers, according to analyst Abbe Will.

Reporting from Chicago—

Goodbye, over-the-top kitchen remodel? Hello, sturdy but unshowy new windows?

Maybe so, if a recent report on where we'll put our remodeling dollars in the coming years turns out to be correct.

We're at the end of an era in home renovations. The big-bucks projects that transformed our spaces during the housing boom are giving way to more practical, dollar-conscious ones, according to analyst Abbe Will, who studied trends in remodeling for Harvard University's Joint Center for Housing Studies.

Home renovations soared with the real estate market, then crashed, Will said. Now, she said, although the phones are starting to ring again at remodeling companies, consumers are less likely to ask for the deluxe makeovers that were commonplace just a few years ago.

Here are Will's answers to some questions about where our nest-feathering desires are likely to take us as the economy recovers:

What happened to remodeling during the housing boom and bust?

During the boom, people focused on major, upper-end kitchen and bath remodels and room additions. Americans took it to unprecedented heights.

Construction peaked and started crashing in 2006, and remodeling followed about a year after. The focus went away from big projects to things people were doing if they were trying to sell their house, whatever they could do for curb appeal to make [buyers] stop and take a look. It was a lot of siding, roofing and smaller projects.

It has been a dramatic shift from the boom. In the last couple of years, people were focusing only on whatever needed to be done, such as replacing heating and cooling systems. They were trying to take advantage of the tax credit for energy-efficient upgrades.

What did this do to the remodeling industry?

The remodeling business is extremely fragmented, and we don't have terribly recent data, but the best data come from the census from 2007, which estimated there are 650,000 remodeling contracting companies. That number doesn't include the smallest, self-employed remodelers who are doing it part time or making less than $25,000 a year. Where we're seeing a change now is in the consolidation of the bigger companies.

At the peak of the market in 2007, remodeling of owner-occupied homes was a $327-billion business, and that number includes maintenance and repairs. In 2009, it was down to $286 billion.

Where is the business going now?

Our report doesn't include maintenance and repairs, but through the third quarter, at least, we see a very respectable gain, a 6.5% increase in home improvement spending. We estimate that homeowner spending will increase 3.5% per year, compounded, in 2010 through 2015.

What's going to lift the business?

We definitely think we won't be returning to those levels of spending from the boom. People are nervous about whether they can afford that big project because the credit markets are still tight, and homes that have lost so much value don't have the equity for big projects.

Once the foreclosures finally trickle through the market, once people start buying them, people will do some projects that have been backlogged, because any owner who was going through a foreclosure wasn't likely to invest anything in the home. So these newly purchased foreclosed homes are going to need a lot of attention once they work through the system.

The aging of the housing stock in this country and the projects they'll need to remain livable is another factor, along with people's reduced mobility. People just aren't moving very much because they haven't been able to sell their homes.

Until the housing market is back to a healthy level of activity, until people are confident about the labor market and think they can move again, people won't be changing their mind-sets. They used to think they wouldn't be in a home more than three years, but now they're thinking five or 10 years.

It's possible that they'll figure, "Well, if we can't move, we might as well make this house into our dream house." Reduced mobility will potentially lead to that, but we don't think it's going to happen soon. Instead, they're going to be thinking of a new roof or windows or doors, where they might have just presumed that they'd move and the new owners would do the replacements.

They're going to do smaller projects in the kitchen and bath instead of an overhaul. They might do parts of those fix-ups at a time. Mostly, they're going to stick to the projects that really need to be done or that will help them save money in the long run.

One trend that will push remodeling is "green." That's a fuzzy word and not well-defined, but it's a trend that's been growing: window replacements, doors, insulation, heating and cooling systems and energy-efficient appliances. When people need to make a replacement, they'll think about what's going to save more money over time.