Wikinvest Wire

U.S. housing boom now officially over

Friday, February 29, 2008

Clear evidence that the U.S. housing boom is now officially over appeared in bold type in this story at CNN/Money - Say good-bye to granite countertops. It almost sounds un-American to print such a thing, but there it was.
As first discussed here almost three years ago, back when this blog was just starting out in the spring of 2005, the end result seemed clear - it was just a matter of the timing.

Talk of housing bubbles and real estate speculator excess has reached such a fever pitch, that, whether it happens this year or next, it is clear that the excitement, new-found wealth, and pure delusional joy that today's real estate market has engendered will soon be gone.
When the real estate boom finally ends, will we be left with anything other than a pile of debt and a bunch of granite countertops?
Well, the boom has surely ended and, as expected, Americans are indeed left with "a pile of debt and a bunch of granite countertops", though, lots of those granite countertops are now owned by the bank along with the rest of the house.

American consumers turning away from granite countertops, once the object of their endless affection (and quite functional too), just makes it official.

In some ways, granite countertops were like marijuana, a sort of entry drug, where a homeowner could dip a toe in the home-equity water and come out smiling, at least for a few years. Investment property and subprime lending, on the other hand, were like crack cocaine and heroin - almost guaranteed to end in tears.

Whatever the drug analogy, kitchen upgrades now have a completely different feel than they did a few years back and stories like the one below are only going to make things worse for the likes of Home Depot and Lowes, where countertop installers are probably losing their jobs at a pace equaled by mortgage originators.
Say good-bye to granite countertops
High-end kitchen and bath renovations just aren't boosting a home's value the way they used to. Sellers who succumbed to home over-improvement syndrome are feeling the pain.

The granite countertop's glory days might be over.

During the housing boom, updating a kitchen with high end materials like cherry wood cabinets and a Viking stove was a sure bet to boost a home's value. Homeowners often recovered about 80% of the cost when the house was later sold.

But with so much more inventory on the market for buyers to choose from, they just aren't as impressed with the bells and whistles. Now most upscale renovations are returning less than 70% of their cost, according to a recent survey from the National Association of Realtors (NAR).

"Pay-back for high-end projects has declined over the past few years," said Kermit Baker, chief economist for the American Institute of Architects (AIA). "People planning to sell shouldn't over-improve," he said. "They won't get the money out if they sell in the next two or three years."
"I definitely saw a lot of tract houses built in the 1970s, in developments with three basic floors plans, get expensive renovations," he said. "We did a lot of radical projects, moving walls around, installing granite counters instead of Formica and cherry wood cabinets instead of oak."

The numbers made sense. In 2005, a fancy kitchen renovation on the West Coast returned an average of 93% of its cost. Even if the owner got only a year or two use of it, the close-to-break-even return made it worthwhile. By 2007, the return had declined precipitously to 74%.
Yeah, the numbers made sense in 2005, when home prices rose $100,000 a year in many parts of the country. A few years back, it was as if money was falling from the sky and, if you didn't borrow that $30K, $50K, or $100K to upgrade, you'd be laughed out of the neighborhood.

How times have changed.

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Anonymous said...

Does "high-end" have a precise meaning? Posh? Expensive? Extravagant?

Anonymous said...

"...if you didn't borrow that $30K, $50K, or $100K to upgrade, you'd be laughed out of the neighborhood."

As the legendary Irish footballer Roy Keane once said:

"Only dead fish go with the flow."

Anonymous said...

Yes the latest greed bubble has burst as it must. Ah but no worry. Human greed, especially the American kind, has no limit. The elites are already busy looking for the next thing to inflate, then blow up. How else do you make money? And there are still a hundred million suckers and fools out there that need to be satisfied.

Anonymous said...

They already have their next bubble....commodities and metals. That is part of the reason for the rising costs, people are getting out of stocks and into commodities. Demand is up...prices follow. Meanwhile the average Joe gets clobbered at the pump and at the grocery store. I love this country and sometimes it hurts when I see where we are at.

inittowinit said...

There are so many alternative products out there to give the "high end" look that the upscale, most expensive options just aren't always the best route anymore. Plus, granite releases radon gas. There are many products out there, including Granicrete and Spreadstone which can be overlaid onto a laminate countertop to give the illusion of granite. If one is skilled, the result can be extremely realistic and most people wouldn't tell the difference. It boils down to me, whether you want the look and feel, or do you want to "name drop"? Most any "upscale" option has alternatives if people would just shop around and stick to a budget. The payback is usually a higher percentage than spending the for the full monty. It would have cost me $5,000 to replace my counters with granite. I am resurfacting them with a very realistic look for $250.


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