Longtime Orlando remodeler Marion McGrath has noticed something different about the houses she's renovating: more of them have slightly faded "For Sale" signs tucked inside.
"A lot of times, when we go talk to a client, we'll see a 'For Sale' sign in their garage — where they have tried to sell but couldn't," said McGrath, president of the Home Builders Association of Orlando. "We don't see the real large remodels so much anymore, the big additions. We do a lot of kitchens, a lot of bathrooms and a lot of outdoor areas."
Five years ago, the number of new homes being built in Orange County outpaced those being remodeled. Then both the new-home and renovation markets collapsed. But as people realized they couldn't sell their homes for top dollar, a shift occurred, and more homes have been renovated than built in each of the past four years.
An Orlando Sentinel analysis of Orange County building permits for the past six years found that builders were issued permits to build 827 new houses last year [ 2010] — an 84 percent drop from 2005. Meanwhile, the county approved 1,002 remodeling permits last year — down 77 percent from 2005.
Even as remodeling continues to outpace new construction, homeowners still face a reality check when they consider investing money in homes that could be worth half their 2007 value.
Orlando resident Dyana Petro is nearing the end of a whole-house remodel of the Rose Isle home that her family purchased in 2009.
"We consider this a long-term investment," Petro said. "The prices we are getting on items is more cost-effective now. We expect to recoup our costs, maybe not in five years, but I feel comfortable we have not overspent."
The local trend is apparent nationally as well, with spending on new construction outpacing remodeling in strong economies but falling behind during economic downturns. During the past five years, for example, U.S. consumers spent $2 on remodeling for every $1 spent on new construction, according to a recent report by Harvard University's Joint Center for Housing Studies.
The most popular home alterations across the nation in recent years have been exterior renovations and heating-and-plumbing upgrades, the Harvard study found.
The average Orlando homeowner spent $2,400 a year on remodeling during the past decade, while homeowners in older metro areas with aging housing stocks, such as St. Louis and Baltimore, spent an average $3,000 a year, the study reported. While the number of home makeovers in the Orlando area is likely to grow in coming years, that growth is not likely to match the pace in other areas because of this area's relatively young housing stock, precipitous drop in home values, low median income and inexpensive home prices, the Harvard study concluded.
Beyond the fact that many homeowners are struggling to sell their existing homes so they can buy new ones, several other factors may underlie the shift from home construction to home rehabilitation.
For starters, getting financing for a new house can be challenging. With distress sales dominating the Orlando market, new-home appraisals sometimes come in for less than the cost of construction, which limits the amount of money a bank is willing to lend for a mortgage. A slimmed-down remodeling, on the other hand, is affordable enough that a homeowner can save up and pay cash or tap an existing home-equity line of credit.
"They're doing what's more functional and strictly for family, and less likely to do what they might see in a magazine," said Chuluota contractor Bill Ockenden, president of the Remodelers Council of Orlando. "They're doing less sizzle."
Also, homeowners who choose to renovate usually don't face the credit checks, closing costs and other hassles that can challenge new-home buyers.
"Remodeling is what a lot of consumers think of as an easier pill to swallow," Ockenden said.
Another reason home projects now outnumber housing starts: jobs. Unlike remodeling, a recovery of the home-construction sector will depend largely on a return of jobs to the area — yet the unemployment rate continues to hang at 12 percent for Metro Orlando.
Nationally, spending on remodeling dropped for all groups of homeowners from 2007 to 2009, with retirees cutting back less than any other group. The study noted that older homeowners were the most likely to have equity in their homes, giving them more to protect and a way to finance the work if necessary.
Ockenden said he's now talking with more prospective customers interested in "aging in place" by adding home features such as handicapped-accessible kitchen cabinets and walk-in tubs.
"As baby boomers age, that's going to become 30 percent of the population, and we're getting more and more people in that group who are saying, 'Lets just stay in this home and modify it.' "
This article was first published in the Orlando Sentinel on Jan. 29, 2011. This article from Tribune Company news outlets has been republished for additional education purposes. Please note that this editorial content was produced by Tribune news staff who are not employed by ForSaleByOwner.com or by Tribune Digital Marketplaces. This article is not affiliated with any links or products that appear on the on the same pages. Read more about our editorial policy.