COST VS. VALUE: WHICH HOME IMPROVEMENTS OFFER THE HIGHEST ROI IN 2017?

With the many different projects reported annually in Remodeling Magazine’s Cost  vs. Value Report, not much has changed from last year...and that's not a bad thing. The 29 projects found on this year’s report paid back an average of 64.3 cents on the dollar in resale value. Looking at the 24 most tracked projects (projects consistently tracked for the last six years), their payback for 2017 was also 64.3 cents—only three-quarters of a penny higher than 2016 projections.

Why the little change? Simply put: the differences in underlying numbers was minimal year-to-year. The average cost for those 24 projects rose a meager 3 percent, while the value that real estate professionals put on said projects only rose 4.2 percent. Minor gains, yes, but we’ll take what we can get.

Recent and long-time trends continued, reports Remodeling. Curb appeal projects like changes to doors, windows and siding garnered a higher ROI than work done inside the home. Replacement projects, like doors or windows, scored higher among real estate pros than did remodels.

On a national scale, the top five projects with the greatest ROI in the report’s “midrange” cost category are:

1. Attic Insulation (Fiberglass) (107.7% ROI)
   Average Cost: $1,343
   Average Resale Value: $1,446
2. Entry Door Replacement (steel) (90.7% ROI)
   Average Cost: $1,413
   Average Resale Value: $1,282
3. Manufactured Stone Veneer (89.4% ROI)
   Average Cost: $7,851
   Average Resale Value: $7,019
4. Minor Kitchen Remodel (80.2% ROI)
   Average Cost: $20,830
   Average Resale Value: $16,699
5.  Garage Door Replacement (76.9% ROI)
   Average Cost: $1,749
   Average Resale Value: $1,345

The top five projects with the greatest ROI in the report’s “upscale” cost category are:

1. Garage Door Replacement (85.0% ROI)
   Average Cost: $3,304
   Average Resale Value: $2,810
2. Entry Door Replacement (fiberglass) (77.8% ROI)
   Average Cost: $3,276
   Average Resale Value: $2,550
3. Window Replacement (vinyl) (73.9% ROI)
   Average Cost: $15,282
   Average Resale Value: $11,286
4. Window Replacement (wood) (73.0% ROI)
   Average Cost: $18,759
   Average Resale Value: $13,691
5.  Grand Entrance (fiberglass) (70.1% ROI)
   Average Cost: $8,358
   Average Resale Value: $5,855

Regionally, the Pacific division (California, Oregon, Washington, Alaska and Hawaii) saw an average payback of 78.2 percent for all projects, with 10 projects posting cost-recouped levels of at least 90 percent. The East North Central states of Ohio, Indiana, Michigan, Illinois and Wisconsin, however, saw an average of just 54.9 percent, with no single project offering a payback of as much as 80 cents on the dollar.

At the other end of the spectrum are projects with the lowest returns on investment—improvements generally not in demand by the market. Again on a national scale, the five projects with the lowest ROI in the “midrange” cost category are:

1. Bathroom Remodel (64.8% ROI)
   Average Cost: $18,546
   Average Resale Value: $12,024
2. Master Suite Addition (64.8% ROI)
   Average Cost: $119,533
   Average Resale Value: $77,506
3.  Backyard Patio (54.9% ROI)
   Average Cost: $51,985
   Average Resale Value: $28,546
4.  Backup Power Generator (54.0% ROI)
   Average Cost: $12,860
   Average Resale Value: $6,940
5.  Bathroom Addition (53.9% ROI)
   Average Cost: $43,232
   Average Resale Value: $23,283

The five projects with the lowest ROI in the “upscale” cost category are:

1. Major Kitchen Remodel (61.9% ROI)
   Average Cost: $122,991
   Average Resale Value: $76,149
2. Master Suite Addition (59.9% ROI)
   Average Cost: $250,687
   Average Resale Value: $150,140
3. Bathroom Remodel (59.1% ROI)
   Average Cost: $59,979
   Average Resale Value: $35,456
4. Bathroom Addition (57.1% ROI)
   Average Cost: $81,515
   Average Resale Value: $46,507
5. Deck Addition (composite) (56.4% ROI)
   Average Cost: $39,339
   Average Resale Value: $22,171

The 2017 Cost vs. Value Report compares, across 99 markets, the average cost of 29 popular remodeling projects with their average value at resale one year later. Average resale value is calculated based on estimates provided by real estate professionals. View the full report, including project descriptions and city-level data, here.

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ANOTHER FAT YEAR FOR REAL ESTATE? SIX HOUSING MARKET PREDICTIONS FOR 2017

OC Register

If economic indicators are any guide, Orange County’s housing market is heading for a fifth straight year of rising home prices, increased sales, more rent hikes and booming home construction.

But this year’s housing indicators don’t take one major wild card into account: President-elect Donald Trump.

“The issue here isn’t the trends. The trends are positive,” said Christopher Thornberg, a former UCLA professor and founding partner of Beacon Economics. “On the other hand, you’ve got this new administration coming in, and we’re not sure (what policies) they’re going to pursue.”

Tax cuts and increased infrastructure spending would stimulate economic growth, Thornberg said. That’s good for housing.

But a trade war with China and an ideological confrontation with California “could really hurt our economy, and all bets are off,” he said.

“The fundamentals are there for another year of rising prices, another year of rising rents. But that could be tipped over by Trump and company.”

Forecasting long has been characterized as risky, as being either lucky or wrong, as akin to searching for a black cat in a dark room. Still, when it comes to housing, there are plenty of forecasts to choose from.

With that in mind, here are six predictions for 2017.
1. Home prices rising
Highlight: Orange County home prices are projected to rise 2 percent to 6 percent this year.

Home prices in the county have been rising steadily since the housing market turned around in the spring of 2012. According to CoreLogic, prices have been up year over year for 54 straight months, rising $216,000, or 50 percent, from May 2012 to this past May.

The median price for all homes combined – or the price at the midpoint of all sales – shattered the all-time high in May and June this year, driven mainly by record prices for new homes. If the forecasts are accurate, the median for existing homes – still lagging prerecession highs – also will set new records this year.

Details: Chapman University forecasts a 5.7 percent increase; Cal State Fullerton, up 6 percent; the California Association of Realtors, up 3.2 percent for all Southern California. Steve Thomas of ReportsOnHousing.com expects a smaller gain – around 2 percent – because of rising mortgage rates.

The reason: Continued improvement in the employment market, solid income gains and more people moving into homes of their own, said Anil Puri, director of CSUF’s Woods Center for Economic Analysis and Forecasting. Competition for a limited number of homes also is pushing prices higher. “Those are big drivers in the housing market,” Puri said.

2. More home sales
Highlight: Southern California home sales will increase slightly from last year.

Details: Chapman and CSUF didn’t issue specific numbers, but the state Realtor association predicts sales across Southern California will increase 0.7 percent. Thomas predicts a slight sales decrease from 2015-16 levels.

A total of 31,641 Orange County homes changed hands through October, CoreLogic figures show. That’s up 2.3 percent from 2015 to the highest level since the recession but still is 10 percent below the average for the past 29 years.

The reason: Again, more jobs, higher incomes and more people looking for housing.

“Sales are going to start showing a greater rate of increase (in 2017),” said Raymond Sfeir, director of Chapman’s Anderson Center for Economic Research.

3. Builders busier
Highlight: Construction will increase in Orange County for a seventh straight year, increasing by 3 percent to 13 percent.

Details: Chapman predicts builders will pull permits for 11,602 new housing units this year, up from an estimated 11,262 last year. CSUF predicts developers will build 14,000 units. The California Homebuilding Foundation’s CIRB report, however, predicts permits will drop to 11,000 units this year.

Chapman and CSUF also predict that construction jobs will increase 3.5 percent to 6 percent, rising to at least 106,000 workers.

“Things are looking positive for the construction market,” Puri said.

4. Mortgage rates up
Highlight: Interest rates for a fixed, 30-year mortgage will be 1 percentage point or more above the 2016 average of 3.6 percent.

Details: California Realtors forecast in October that mortgage rates would be around 4 percent throughout 2017 but now are revising that estimate, said Jordan Levine, a Realtor economist. He predicts rates could be in the 4.5 percent range this year and possibly as high as 5 percent. Other forecasters had the same prediction.

Higher rates translate into higher homebuying costs.

For example, if rates hit 4.5 percent, monthly mortgage payments for a median-price home will go up about $300 – an increase of nearly $4,000 annually, Thomas calculated.

If rates hit 5 percent, monthly mortgage payments will rise almost $500, or nearly $6,000 annually.

Most economists said higher rates will dampen but not halt this year’s expected increase in home prices and sales.

“There’s a lot of pent-up demand,” Sfeir said.

5. Affordability down
Highlight: By year end, Orange County’s median family income will pay only 60 percent of the amount needed to buy a median-priced home, Chapman reported.

Chapman also predicts that median home prices this year will be 8.6 times the median income, compared with 6.1 times the median price statewide.

“Housing affordability in the county hasn’t been that low since the beginning of the Great Recession,” the Chapman forecast said. “The only affordable way for many lower-income families to find housing in the county is through rental housing.”

6. Smaller rent hikes
Highlight: Asking rents for an Orange County apartment will increase 2.7 percent to 4 percent this year.

Details: Axiometrics forecast a 2.7 percent rise; CoStar forecast a 3 percent increase; and MPF Research expects local rents to go up 4 percent.

Apartment trackers reported that 2016 rent hikes ranged from 3 percent to 5 percent.

Rents here have been rising steadily for 6½ years, up 20 percent since 2010, according to Reis Inc.

Orange County had the eighth-highest apartment rent among 79 large U.S. metro areas in the third quarter of 2016.

If the forecasts are accurate, the county’s average asking rent will range from $1,826 to $1,849 a month.

Orange County has almost 10,000 units under construction, but that’s too few to meet demand, said Joshua Ohl, a CoStar senior market analyst.

“Even with all that supply coming online, we still have 34,000 to 35,000 units of undersupply,” Ohl said.

The question is how long can landlords continue to push up rents.

“I guess as long as tenants keep paying,” he said.

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THE 3 BIGGEST REASONS YOU CAN'T SELL YOUR HOME

So-called “sale fails” are on the rise.

Deals to sell homes are falling through at a faster rate than they were a year ago, according to a report released Wednesday by real-estate site Trulia. which found that Indeed, “on an annual basis, the failure rate has nearly doubled to 3.9% in 2016, up from 2.1% in 2015,” the report revealed. The real estate site looked at all listings that were pulled for the first two months of each quarter from the fourth quarter of 2014 through the fourth quarter of 2016.

Home sale deals fail for three main reasons, said Felipe Chacon, a housing data analyst for Trulia:
1) A buyer can’t get financing.

2) The inspection turns up something bad.

3) The appraisal doesn’t match up to the sale price.

More first-time buyers — many of them young and with lower incomes — are attempting to buy a starter home now. First-time homebuyers made up 35% of sales in 2016 up from 32% in 2015, the National Association of Realtors found. And members of this group is more likely to have trouble getting financing, as they are typically not familiar with the process and may not bring as long of a credit history or as much equity to the table, says Chacon.

Don’t miss: Don’t be afraid to buy a fixer-upper in 2017

Plus, many baby boomers are putting their homes on the market as they downsize and prepare for retirement. These homes tend to be older and thus are more likely to have issues that an inspector will catch, the study concluded. Finally, with home prices climbing steadily, many sellers ask high sums — and many buyers agree to those sums. The problem is that an appraiser might not, and the sale fails.

Of course, most of the time, when a buyer and seller make a deal, it does go through. Sale fails represent just 4.3% of all listed properties. And certain kinds of homes (high-end newer homes, for example) are far less likely to end up in a failed deal than others. Furthermore, buyers whose sales do go through are more likely than in the past to be able to pay their mortgage, thanks to stricter lending guidelines since the Great Recession.

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ATTOM: FORECLOSURE ACTIVITY HITS 10-YEAR LOW

Foreclosure activity dropped significantly in 2016 to its lowest point in 10 years, according to the 2016 U.S. Foreclosure Market report from ATTOM Data Solutions, a fused property database.

Foreclosure filings, including default notices, scheduled auctions and bank repossessions, occurred at 933,045 properties in 2016, down 14% from 2015’s 717,522 properties. This marked the lowest level of filings since 2006.

ATTOM’s report reflected that .7% of all homes had at least one foreclosure filing in 2016, also the lowest point since 2006.

ATTOM’s year-end foreclosure report is a count of unique properties with a foreclosure filing during the year based on publicly recorded and published foreclosure filings.

The data from December shows foreclosure filings decreased 1% from November and 17% from December 2015. This marks the 15th consecutive month with annual decreases in foreclosure activity.

“The national foreclosure rate stayed within an historically normal range for the third consecutive year in 2016, even as banks continued to clear out legacy foreclosures from the last housing bubble, particularly in the final quarter of the year,” said Daren Blomquist, ATTOM Data Solutions senior vice president.

“Foreclosures completed in the fourth quarter had been in the foreclosure process 803 days on average, a substantial jump from the third quarter and indicating that banks pushed through significant numbers of legacy foreclosures during the quarter,” Blomquist said. “Despite that push, we still show that more than half of all active foreclosures nationwide are on loans originated between 2004 and 2008, with a much higher share of legacy foreclosures in some markets.”

Despite this decrease, foreclosure activity still decreased in 12 states including Delaware which increased 45%, Rhode Island by 29%, Massachusetts by 21%, Connecticut up 21% and Hawaii by 20%.

The time to foreclose increased in the fourth quarter of 2016 to a new record high of 803 days, a jump of 29% from the third quarter and an increase of 27% from last year. This is the longest foreclosure time since ATTOM began tracking in the first quarter of 2007.

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ARE LOCAL HOUSING'S PRICE GAINS REAL? APPRAISERS SEEM TO THINK SO.

OC Register

Real estate appraisers are the industry’s professional party poopers.

They’re paid to keep an eye on valuations so buyers, lenders – and even sellers – know a home price is within logical boundaries. If appraisers get skittish about the housing market, deals and loans get harder to complete.

I watch a curious regional home-price index from the Real Estate Research Council of Southern California, a group of property industries analysts and insiders operating out of Cal Poly Pomona.

The group produces a housing benchmark by having volunteer appraisers go out every six months to value the same 308 homes in the seven-county area to gauge pricing patterns. The group has done this since 1943, with a major revision in 1990.

To me, when you compare the appraiser indexes to traditional benchmarks – say, CoreLogic’s widely quoted median selling price – you get a sense of whether broad valuation trends are consistent with the logic appraisers use. Look, appraisers are human and have their own faults. But computer-created valuations missed badly in the last housing boom-to-bust, too.

I tossed the appraisers’ indexes and CoreLogic data into my trusty spreadsheet, with the caveat that the council tracks one extra county – seven, including Santa Barbara – in their regional math vs. the six counties followed by the Southern California area median. Here are five things I learned:

1. Values are up
Appraisers are by nature stingy and often slow to change their math.

But the index shows regionwide values are up 7 percent in the year ended in October. That’s the biggest gain since October 2014.

By county, October’s annualized gains were, high to low: Riverside, 8.4 percent; San Diego, 8.0 percent; Orange County, 7.2 percent; Los Angeles, 6.5 percent; San Bernardino and Santa Barbara, both at 6.4 percent; and Ventura, the low at 6.2 percent.

All October county gains were above previous results for October 2015 and April 2016.

2. Reasonable median
The region’s appreciation gain topped the corresponding increase in the area home price median, 7 percent vs. 6.9 percent.

That’s pretty insignificant and may be more appraiser skepticism catching up slowly to market conditions. This is the first time since October 2014 the appraiser index’s gains topped the area median.

Only Riverside County’s latest appraisers index report showed a larger year-over-year gain (8.4 percent) than the respective county median (8.1 percent.)

3. Mixed neighborhoods
Regional or county measures don’t speak to what’s happening on your block.

Gains may seem geographically universal, but not on a house-by-house basis. Another interesting fact from the appraisers is the share of houses with falling valuations.

Regionally, 8 percent of the homes revisited by appraisers were valued less this time around vs. October 2015. That’s down from 10 percent last April and 12 percent a year ago.

This share of “losers” ran in October on a county basis from a high in Los Angeles at 14.0 percent; to Orange County’s 10 percent; Ventura, 6 percent; San Bernardino, 3 percent; San Diego, 2 percent; and none in Riverside and Santa Barbara.

4. Long-run upswing
A longer-term view suggests only thin skepticism of regional appreciation.

When you look at price changes since October 2013, the appraisers’ regional index averaged 8.2 percent year-over-year gains.

On the county level, similar gains run from a high of Riverside at 10.6 percent; then Los Angeles, 8.7 percent; San Bernardino, 8.4 percent; San Diego, 7.2 percent; and Ventura 6.7 percent; to a low in Orange County of 6.4 percent.

5. Regional variances
Ponder gaps between housing appreciation rates derived from the appraiser index and the area median.

Regionally, gains averaged 8.2 percent annually for three years. That’s 0.6 percentage points above what the area median is telling us. That form of “approval” was also found in Riverside (by a regional high 1.6 percentage points) and Los Angeles (plus 0.6 percentage points.)

Conversely, appraisers seem to doubt pricing changes in San Bernardino (where appraisers put pricing gains 1.3 percentage points lower than the median) and Ventura (0.5 percentage points lower.) Gains in Orange and San Diego counties were basically the same by either count.

These too many numbers prove one thing: Housing is very local.

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