Is It Time to Revive Your Big Home Improvement Plan?
I'll go out on a limb and predict that there's a home improvement project that you've been burning to do.
Whether it's a matter of finally giving your kitchen the granite countertops that you've always wanted, resurfacing your scratched-up swimming pool, or converting your garage into a home theater, nearly every homeowner is itching for makeover.
Unfortunately, there are just too many obstacles in the way.
The economy is still more than a bit shaky.
Home prices continue to fall. Trend tracker LPS Applied Analytics finds that home prices this summer have fallen by 3.8% since last summer, and by a whopping 28.3% since the market peaked five years ago. Obviously there are some boom-to-bust cities that have seen prices fall by even more. In other words, it's not easy to justify costly and time-consuming projects to doll up a depreciating asset.
Even if you committed to the makeover, how would you pay for it? Banks are stingy, for a change. It's also hard to tap a home equity line of credit when your mortgage is worth as much -- if not more -- than your home is presently worth. Who cares about historic low mortgage rates if you can't have access to them?
If you happen to have an underwater mortgage, why invest in a permanent improvement for a house that the bank may foreclose on? It may even make financial sense for you to hand the property over to the creditor and join the growing ranks of renters.
It isn't easy out there.
Signs of Life
Before I depress you to the point of getting those moving boxes out of the garage, let's go over some of the more encouraging developments that have materialized in recent weeks.
Trex (TREX) is the leading maker of wood-alternative decks. As you can imagine, there hasn't been a whole lot of demand for Trex's high-end weatherproof planks and patio fixtures. However, after checking with its distributors, Trex is forecasting 25% sales growth during next year's first quarter, with "significant" growth for all of 2012.
Lumber Liquidators (LL), the leading retailer dedicated to hardwood planks, posted better than expected earnings in its latest quarter. That's the first time that Lumber Liquidators has landed ahead of the pros in a year.
Earlier this week, Home Depot (HD) and Lowe's (LOW) posted better than expected bottom-line results. Home Depot's report was particularly encouraging. The leading home improvement retailer posted a healthy 4.2% increase in same-store sales, fueled by a 1.2% increase in traffic and a 3% spike in average transaction. In other words, Home Depot is attracting more shoppers and they're spending more.
Home Depot has been outperforming rival Lowe's for some time, but both superstore operators are clearly improving.
Signs of Caution
It's important to remember that Hurricane Irene pounding the northeast helped drum up visits to Home Depot and Lowe's during the period. Investors may want to wait for the current quarter to play itself out to get a fairer picture of consumer demand for home improvement gear.
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There's also the grim reality that no one -- and I mean no one -- knows when real estate prices will truly bottom out. In other words, it's probably best to approach a home improvement project in terms of your own enjoyment of the upgrade -- and not for the delusional sake of pumping more value into your home.
In fact, experts agree that most makeover projects will not add their full tab to the value of your home. Some investments -- such as adding a pool or tearing down a wall to combine two smaller rooms into a single larger space -- may even limit your home's resale appeal. It also goes without saying that time may also diminish the value of your add-on. A shiny new wood deck may not look so great in five years. Today's trendy bedroom paint themes or kitchen touches may not be so fashionable tomorrow.
Extreme Makeover: Your Edition
Let's get back to your dream home improvement project. Can you afford it? If you can't, hold on to that dream a little longer. If you can, make sure that your debt and mortgage situation won't lead to creditors taking over your spruced-up digs.
If you're still up for going through with the project, you'll probably find no shortage of specialists willing to work for the limited jobs that are out there if you don't want to take it on yourself.
There certainly are some signs that the skies are getting a little clearer, but don't take optimistic Trex distributors and a potentially storm-padded quarter at Home Depot as definitive signs that the coast is clear. The right time to finally tackle that project that's been gnawing away at you is when you have the means to make it happen and the comfort level to make sure that you can enjoy it.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Lumber Liquidators Holdings. Motley Fool newsletter services have recommended buying shares of Lowe's, The Home Depot, and Lumber Liquidators Holdings. Motley Fool newsletter services have recommended writing covered calls in Lowe's.
