Staying in place

More Hawaii homeowners are remodeling as the hot housing market makes trading up less affordable

PATRICK and Sharon Walsh, a Kailua couple in their late 20s, tried for six months to find a suitable first home in Honolulu's crazed housing market only to conclude that the prices were too high and the spaces too small.

Sharon's parents, Will and Gloria Williaford, shared a similar experience trying to downsize from their circa-1970s home in the sought-after Enchanted Lake subdivision.

"We couldn't find anything that we liked," Patrick Walsh said. "My inlaws came and looked with us and they weren't impressed either."

When finding a space of their own became too difficult for both couples, they decided to create a space by turning their single-family Enchanted Lake Home into multigenerational quarters.

The couples took out a construction loan and pulled equity out of the Williafords' existing home. For $300,040, the Walshes gained a 3,600-square-foot-home and the Williafords got a custom 900-square-foot addition.

"It's not the home I grew up in," said Sharon Walsh. After its renovation, the Enchanted Lake home has the light and open feel of today's homes and has been customized to fit the tastes of the younger Walsh generation.

During the previous real estate cycles when a couple outgrew the cramped spaces of their Honolulu condominium they'd trade up, but the high prices of this hot housing market have enticed more of them to stay put and focus on improving their existing home, said Mike Mudgett, marketing and project coordinator for Homeworks Construction and lead guy on the Williaford remodel.

"It would have cost $600,000 or $700,000 just in construction costs to replicate the Williaford home," Mudgett said. "This way both couples got nice, new homes for a good value."

The growing popularity of remodeling versus moving has created a boom in the renovation industry that contractors say is here to stay. While new builds used to be the way that most contractors made their money, many industry players now credit large-scale renovations for their greatest volume of business.

"We've seen a lot of strong growth in remodeling spending as a whole and a big reason is tied directly to the economic forces of the real estate market," said Jim Lapides, communications manager for the Remodelors Council of the National Association of Home Builders, which represents and serves the interests of more than 10,000 remodeling industry members.

There's been substantial growth in the remodeling industry nationwide, Lapides said. Homeowners spent $210 billion last year on remodeling, up from $177.9 billion in 2003, he said.

For many Honolulu builders, remodeling has become the most lucrative portion of their business, said Homeworks Construction owner Jim Byxbee, who saw remodeling revenue rise by as much as 30 percent in 2005.

"We've seen a big jump," Byxbee said. "Some years we build more new homes than we do remodeling projects, but not last year."

Honolulu homebuilders have seen the market flip from being primarily new builds to remodels, said Danny Graham, owner of Danny Graham Builders Inc.

"In the last eight to 10 months, the market has shifted," Graham said. "We used to do 30 percent remodeling, 70 percent design builds. Now, I'd say 60 percent of our business is in remodeling."

Building a new custom home is a viable option in some mainland markets for homeowners that have outgrown their existing homes, said Karen T. Nakamura, chief executive officer of the Builders Industry Association.

But limited land on Oahu has made new builds an impractical option for many unless they are willing to pay premium prices or move farther out from the center of the city and fight traffic, she said.

"People decide to move or remodel because they have a need to change their housing," Nakamura said. "In Hawaii, where real estate is very expensive, remodeling might make more sense for some homeowners."

Remodeling is often the more practical option for homeowners because it allows them to customize a home to meet their particular needs and means that they won't have to give up familiar neighborhoods and schools, she said.

As demand for remodeling has changed the building industry, the scope of what constitutes a remodeling project has changed as well, Graham said. Once upon a time, the top remodel jobs were to improve a kitchen or a bath with homeowners spending an average of $80,000 to $150,000 on renovations, he said.

These days, it's not uncommon in Honolulu to see remodels in the $200,000 to $700,000 range with homeowners electing to add everything from new windows and doors to double-walled construction, hurricane safety improvements, new flooring, new kitchens, baths, master-bedroom suites, new additions that capitalize on views and ohana units, Graham said.

While rising home prices have credited a surplus of equity for many Oahu homeowners, when taking into account inventory limits and condition, some homeowners are realizing that remodeling has its advantages.

They might be able to net $500,000 if they sell their home, but with the median home price on Oahu at $614,000, where could they go?

"People face sticker stock and don't want to move, but they have a ton of equity due to the appreciation," Lapides said. "Interest rates are still low so they can pull out equity and remodel with cheap money."

Remodeling is also popular with new home buyers who have discovered that about 80 percent of Oahu's single-family home and condominium inventory is more than 25 years old, Nakamura said.

"Some people are rolling construction loans into the mortgage," Nakamura said.

A rise in the number of young people who are moving back home also has created a niche market for builders, she said.

"The younger generation has the income and the older generation has the land and the location," Nakamura said.

It's not unusual to see the younger generation opting to take out a home construction loan or use equity in their previous home to pay for renovations so that they can move back home with Mom and Dad, Graham said.

"There's a lot of multigenerational living across the cultures," he said, adding that ohana living provides a care solution for Honolulu's aging population.

Others, who have bought or bought homes in affordable areas like Ewa or Kapolei, may have gotten tired of the commute and decided to come home to be closer to town, Graham said.

"You can only sit in traffic for so long before it becomes humbug," he said.

REMODELING YOUR HOME? Here are some key questions to ask Q: Is it cheaper to remodel or move? All remodeling projects are not created equal. While kitchens and bathrooms are still likely to have the highest yield when reselling a house, many homeowners are electing to upgrade their entire property rather than move to a new location. Should you take on the cost? » The general rule of thumb is that any project which brings the value of your home up to the level of your neighbors' or is cheaper than the cost of moving is a worthy investment. » According to the American Homeowner Foundation, selling your home and moving typically costs about 8 percent to 10 percent of the value of your current home. And much of this goes into moving expenses, closing costs, and broker commissions -- items that have no direct impact on your home's quality. » But it doesn't pay to be the most expensive house on the block. Real estate experts recommend that a remodeling investment should not raise the value of your house to more than 10 percent to 15 percent above the median sales price in your neighborhood. » Potential buyers will compare your home to ones newly built. Therefore, you'll want to look at the design trends and amenities being built into new homes. Great rooms (open kitchen/family room arrangements), master bed and bath suites, and higher ceilings are a few of the features sought by today's home buyers. Q: How to evaluate a home remodeler's references Before you sign a contract, ask the remodeler to share names, phone numbers, and/or e-mail addresses of some customers and take the time to see the remodeler's work. Ask to see jobs similar to yours. Does the quality of the work meet your standards? And ask the homeowners: » Would you hire this company again? » Did the remodeler maintain a neat job site, provide regular broom clean-up, and haul away debris including personal trash? » Did the remodeler keep labor and materials delays to a minimum so that your job could be started and completed on time and within budget? » Did you find the remodeler easy to work with? Did the remodeler keep you informed as the job progressed? » Did the remodeler supply you with paperwork in a timely fashion? » How well did the remodeler deal with the problems that arose? Before you make your hiring decision, review some final evaluation guidelines: » Ask yourself if you feel comfortable with the remodeler and confident that this company will do the work according to your plans, budget, and specifications. » Ask for a written estimate of the work to be done based on a set of plans and specifications Be prepared to pay for this package. If the estimated cost of the project is more than you can afford, see if you can trim something from the project or postpone part of it so you can still work with a professional remodeler. » Insist that the remodeler use a detailed, written contract that protects both of you and that complies with local, state, and federal laws. The contract must spell out the work that will and will not be performed and provide a fair payment schedule. » Select the remodeler with a track record of a variety of excellent projects and plenty of experience with your type of project. Beware of an exceptionally low price. Source: National Association of Home Builders