‘Twas only a few years ago, when the housing boom was in full roar, that homeowners didn’t have to fret too much over whether the money they invested in remodeling would be paid back at resale time.

Indeed, it was practically a no-brainer: Home sale prices were going up so high and so fast that remodeling the kitchen or the master bath would nearly pay for itself. Some remodeling companies had so much backlogged work that clients passed the time on waiting lists.

“These days, it’s a new ballgame,” said Sal Alfano, a former contractor who now is the editorial director for Remodeling magazine, a trade journal. “Now, the jobs are smaller, the scope of work has been cut back, and consumers are doing things in phases.”

And, he said, consumers are squinting harder at contractors’ estimates, not only to push down costs but also to decide whether the price of that redone kitchen or master bath is going to pay them back anything when it comes time to sell in a market that has become notoriously fickle and with home prices sliding.

Such born-again cost-consciousness makes complete sense in the current economy, Alfano said, but he’s concerned that the infatuation with the contractor who offers the lowest bid will come back to haunt consumers.

Each year, Alfano’s magazine partners with the National Association of Realtors to produce the Cost vs. Value Report, a massive numbers-crunch that tries to ballpark the return on investment for dozens of home-improvement projects, nationally and regionally, in addition to numerous metro areas, including Chicago.

It’s an ongoing slide, he said. Nationwide, the payback at sale on remodeling, in general, peaked in 2005 (the height of the housing boom) at 86.7 percent, according to the magazine survey of the remodeling industry and NAR members.

“That is,” he said, “it was costing you 13 cents on the dollar to build just about anything (if you were selling the house in a relatively short period).

“That’s pretty cheap,” he said. “Then it sank like a rock, ending up at 76 percent, or 10 points lower than the year before.”

In the 2009 survey, the average payback, nationally, was about 64 percent, according to magazine data.

That’s almost exactly the average for 33 remodeling projects analyzed in the Chicago area in the 2009 survey. Heading the costs-recouped list here were not the glamour kitchen/bath projects, but smaller-scale and more utilitarian jobs.

The best returns here, according to the report, were on midrange entry-door replacements (115 percent return at sale) and upscale fiber-cement siding replacements (85.8 percent).

The magazine extensively defines the parameters of each project, citing specific materials and overall price ranges, all gleaned from cost-estimating software used in the remodeling industry. In addition, this year 4,000 members of the Realtors’ group weighed in on how the improvements might pay back at resale in their local markets. The full report is at remodeling.hw.net.

A midrange major kitchen remodel in Chicago (average cost: $67,332) recouped about 67 percent at sale time. An upscale bathroom remodel here ($63,402) recouped about 50 percent, according to the study.

Despite the data, not all consumers are reining in and battening down, some remodelers say.

“For the people who have the ability and want to do a kitchen remodel, I’m not seeing them skimping,” said Bryan Nooner, chairman of Distinctive Remodelers in Orland Park.

“Pretty typically, we’re seeing kitchen remodels in the $40,000 to $70,000 range. They’re spending what they want to. They still want the granite (counters), they want upgraded wood-cabinet species such as maple or cherry, and we’re doing few standard wood stains — most everybody wants a hand-rubbed finish.”

One of his recent clients, Frank Toland, said resale value wasn’t a consideration when he recently remodeled the kitchen of his Mokena home. He said the job cost about $70,000, in addition to upgrades elsewhere in the house that were done at the same time.

“Resale really didn’t factor in at all,” Toland said. “We’re not planning on moving. We’re planning on staying there, and that’s why we decided to do it the way we wanted.

“We hope that the money we put in, eventually we’ll get it out. But we said, let’s do it the way we want it done rather than cut costs because of resale value.”

Matt Draus, who owns Descon Construction in Oak Park, also said he’s hearing from customers who are thinking long term.

“We see people who have a little bit of money and decide they’re not going to move for five years because of the real estate market,” Draus said. “But we’re not seeing the big blowout room additions.”

Instead, he said, he’s seeing smaller projects and more emphasis on maintaining and updating existing features.

But more so than in recent years, he said, money talks.

“Cost is definitely getting much more scrutiny now,” he said. “It’s all about cost, that’s a No. 1 priority.”

But Draus said that bottom-lining often seems to be coming at the expense of quality. Driven by the slumping economy, the remodeling-industry ranks are swollen with newcomers and some tradespeople who are eager to have any income at all, he said.

“I’m [offering estimates] against people who aren’t honest and upfront and are low-balling it in order to get the work,” he said. “There are a lot of good builders out there, but there are a lot of others who are making times harder for the rest of us.”

Alfano agreed, and urged homeowners to be cautious when considering bids that are significantly below competitors’.

“What we couldn’t account for [in estimating costs for the magazine study] was the number of jobs where the contractor cut his overhead or his profit just to keep busy, hoping that things would turn around,” Alfano said.

“Others are former new-construction builders who don’t yet know that they can’t really do a job for a large percentage less” than competing bidders, he said.

Draus said he’s seeing some companies agree to jobs that unquestionably are money-losers for them, just to keep some cash flowing, sometimes with disastrous results for all.

“[A homeowner] might get a bid of $1,000 from a guy who’s about to go bankrupt or a $3,000 bid from a guy who is competent and stable,” he said.

“I’ve been called in to finish jobs for people who took the $1,000 bid,” he said.

64%

The national average percentage of remodeling costs recouped upon selling a home. That means it costs 36 cents on the dollar to build just about anything for your home.

In the Chicago area, the best returns were not the glamour kitchen/bath projects, but smaller-scale and more utilitarian jobs.

115%

Return on sale for replacing an entry door with a midrange substitute

85.8%

Return on upscale fiber-cement siding replacement

67%

The average payback on a midrange major kitchen remodel

50%

What you’d recoup on the average upscale bathroom remodel

By Mary Umberger

Chicago Tribune

The popular image of wind power is of a windmill-like tower cranking away on the prairie.

The wind power at Kathleen O’Donnell’s North Side home, however, comes from a rooftop device that vaguely resembles a barber pole, without the red-and-white stripes.

O’Donnell has installed an 8-foot-tall wind turbine at her Ravenswood Gardens home, where since October it has harnessed the breezes to provide some of the electricity for the former two-flat that she and her husband spent about a year converting into a single-family home.

The premise is fairly simple: The device’s helical-blade scoops catch the wind, forcing it through the turbine and to the home’s generator, creating electricity. If the wind isn’t blowing, the home is powered by the energy grid, as usual.

An architect, O’Donnell realizes she’s something of a pioneer when it comes to wind turbines in residential use.

“It’s a little bit new,” she said. “Wind is not as ubiquitous as solar, in terms of what people are willing to do.”

But maybe not for long. She notes a broader willingness to embrace energy-conserving products these days. Such acceptance has come a surprisingly long way in a just a few years, she said, and solar panels, geothermal heating and even green roofs don’t get as many quizzical looks as they used to.

Usually, it’s all about that other green, she said — cost.

“The ‘want’ is out there, but the ‘will’ is lagging,” O’Donnell said. “Everybody wants it (when clients) call, but when they’re told this is this much money, and it will increase their overall costs, then reality begins setting in, and they start cutting it.”

Wind power is pretty much an unknown, as far as public acceptance, she said.

“Some people might look at wind and say it’s a vanity thing,” she said. “It’s untested. We just don’t know about its (economic efficiencies). The payback is probably going to be better than solar. Maybe in a year or six months we’ll be able to extrapolate that” at her house.

So she’s using her own home as a guinea pig, to an extent.

“I’m committed to it and want to make my own personal investment to suit my own pursuits and for my goals for green building,” she said.

The costs are not insignificant. Her wind turbine (manufactured by Helix Wind Corp. in San Diego) lists for $7,500. In addition, there were costs for labor, installation, wiring, permits and fabrication of a steel structure and base to support it, which drove the total to roughly $16,500, she said.

The device is capable of fully powering her home, but because it’s so new (installed in October), she hasn’t been able to monitor its energy output precisely. In the spring, she said, she intends to incorporate solar panels to help power the house, in addition to green-roof technology to help heat and cool the house.

O’Donnell may eventually move Tripartite Inc., her architecture practice, into her home, which will complicate her energy use, she said. On the other hand, it could make such conservation measures more valuable.

“I’m skeptical that the turbine is going to (cover) our total energy use, but at least it will be a large portion,” she said. “If we have an office in here and we have a lot of computers going, it will use a lot more energy.”

Nonetheless, she said, the days are gone when a homeowner can do a major renovation and not think long and hard about energy-conservation features.

“We’ve turned a corner,” she said. “You can’t do a rehab and not put in the insulation and the (efficient) windows.

“With all these houses on the market, and (a homebuyer) has to make a choice between house A and house B, and house A has a green aspect and house B missed the mark, I don’t know how you’re going to sell house B.”

Hear Mary Umberger at 12:49 and 11:15 p.m. Tuesday and Thursday and at 10:30 a.m. Saturday and Sunday on WGN-AM 720. Write to her at Money & Real Estate, Chicago Tribune, 435 N. Michigan Ave., 4th Floor, Chicago, IL 60611 or send e-mail to housingnews@comcast.net.

Mary Umberger Chicago Tribune

NYSE Announces Fourth-Quarter 2008 Circuit-Breaker Levels

NEW  YORK , September 30, 2008 — The New York Stock Exchange will implement new circuit-breaker collar trigger levels for fourth-quarter 2008 effective Wednesday, October 1, 2008.

Circuit-breaker points represent the thresholds at which trading is halted marketwide for single-day declines in the Dow Jones Industrial Average (DJIA).   Circuit-breaker levels are set quarterly as 10, 20 and 30-percent of the DJIA average closing values of the previous month, rounded to the nearest 50 points.

In fourth-quarter 2008, the 10, 20 and 30-percent decline levels, respectively, in the DJIA will be as follows:

Level 1 Halt
A 1,100-point drop in the DJIA before 2 p.m. will halt trading for one hour; for 30 minutes if between 2 p.m. and 2:30 p.m.; and have no effect if at 2:30 p.m. or later unless there is a level 2 halt.

Level 2 Halt
A 2,200-point drop in the DJIA before 1:00 p.m. will halt trading for two hours; for one hour if between 1:00 p.m. and 2:00 p.m.; and for the remainder of the day if at 2:00 p.m. or later.

Level 3 Halt
A 3,350-point drop will halt trading for the remainder of the day regardless of when the decline occurs.

Background:
Circuit-breakers are calculated quarterly.  The percentage levels were first implemented in April 1998 and are adjusted on the first trading day of each quarter.  In 2008, those dates are Jan. 2, April 1, July 1 and Oct. 1.

Read more about it at http://www.nyse.com/press/1222772891771.html

NEW YORK (Fortune) — The economic storm pelting the U.S. economy is going to do plenty more damage to already flattened job and housing markets.

But as dark as the next three or four quarters could be, the U.S. economy appears to be undergoing a more lasting, and ultimately uplifting, shift.

Americans who for decades have spent an increasing share of their incomes and taken on more and more debt are now, for the first time in years, saving instead.

The personal savings rate, which measures the amount of disposable personal income that isn’t spent, ticked up to almost 3% in the second quarter of 2008, after almost four years below 1%.

While Americans still aren’t going to win any awards for thrift – consumers save more than 10% of their paychecks in creditor nations such as Germany and Japan, for instance – the return to saving carries big implications for U.S. economic health.

More saving is good over the long haul, because domestic savings create a pool of money from which companies can borrow to invest in new plants and equipment, creating the jobs that push living standards higher over time.

A growing domestic savings pool could also reduce America’s need to borrow money overseas – which would make the U.S. less beholden to foreign creditors who now supply us with hundreds of billions of dollars in financing every year.

Unfortunately, thrift will cost in the short run. Saving more means spending less – which translates into more hard times in retail and other consumer-driven businesses like the auto industry. The latest evidence of the shift came in Wednesday’s steeper-than-expected pullback in retail sales. They dropped 1.2% in September, in their first year-on-year decline in six years and only their third drop in the past 16 years. Economists had been looking for a 0.7% drop.

Given that two-thirds of economic activity is consumer spending, today’s thrift will exacerbate a general downturn and will weaken the impact of the massive interventions the government has made in the financial markets.

“The breadth of the decline shows a broad-based pullback in consumer spending that will not quickly turn around,” writes PNC economist Stuart Hoffman, “even with the arsenal of federal firepower now aimed at the Great Financial Crisis of 2008.”

Federal actions such as a $250 billion plan to buy preferred shares in banks, along with a public guarantee of bank deposits and bank debt, are aimed at unlocking credit markets and boosting economic activity. Policymakers have promised to get banks lending again, to restore economic growth that has clearly been ebbing even as government data chalked up modest gains in gross domestic product for the first half of the year.

“This plan is a means to an end,” Hoffman says of the Treasury’s agreement to make capital injections in banks such as Citi (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500). “The key concept is that reasonably prudent lending should be supported.”

But as the economy shows further signs of deceleration – factory production and industrial capacity utilization fell sharply in September, the Federal Reserve said Thursday – the question is who the banks will be lending to. Indeed, merely plying the banks with capital isn’t certain to get them lending in a world in which businesses and consumers are trying to reduce their leverage after a long run of credit expansion.

William Cline, a senior fellow at the Peterson Institute for International Economics, notes that the decline of saving in the United States over the past two decades was accompanied by a sharp increase in the rate of bank lending, as consumers cashed in on the appreciating value of their houses.

Bank credit growth, after averaging around 6.5% in the 1990s, spiked to 12% in the four years ended in 2007, Cline says. Meanwhile the U.S. personal saving rate turned negative at the height of the housing bubble in 2005, down from around 7% in the early 1990s.

“We were already on course to have some return to saving,” says Cline, who is the author of the 2005 book, “The United States as a Debtor Nation.” With the credit crunch making consumer credit scarcer, he adds, and reduced house prices making Americans feel poorer, “We’re going to see some more pressure on household spending.”

For now, that will mean more pressure on companies that sell their goods to consumers. GM (GM, Fortune 500) and Ford (F, Fortune 500) have traded at multi-decade lows this month as U.S. auto sales slowed to a pace last seen in the early 1990s. Macy’s (M, Fortune 500) dropped 12% Wednesday after the department store chain cut its profit forecast, prompting ratings agency Moody’s to warn that further problems could prompt a costly credit downgrade.

The government interventions mean deleveraging can continue without the risk of an economic collapse, which is obviously “extremely positive” in the long run, says Ken Kamen, a financial adviser who is president of Mercadien Asset Management in Trenton, N.J. But that doesn’t mean the short run is going to be particularly enjoyable, as Wednesday’s 9% stock market decline suggests.

Kamen warns his clients that before they make any hasty decisions, they should decide how much stress they can tolerate in their portfolios.

“You don’t want to be resetting your financial future while the compass needle is spinning,” he says. “You may need to sell assets – but only to the point where you can sleep at night.”

Citic Pacific Ltd seems to be in a bad position. An executive working at Citic seemingly violated procedures by investing in the Australian Dollar, the Euro, and the Chinese yuan without proper approval. When the dollar surged against the Australian dollar and the Euro, Citic Pacific was exposed to unlimited losses due to their investing in major Hong Kong banks using a so-called “accumulator” position.

The company would face a loss of about HK$14.7 billion based on current forex levels; however, as it intends to mark the contracts to market on Dec. 31, the actual loss could be higher or lower. Citic Pacific had already realized losses of HK$807.7 million on the forex contracts as of Friday. Citic Pacific plans to realize all of the losses this year, so they won’t affect the company’s 2009 results.

Citic Pacific had been suspended from trade in Hong Kong on Monday and is expected to fall sharply when it resumes Tuesday.

In changing times with a very volatile economic market, the impacts of the “bailout” prove that our national financial system has been tarnished but the hope for repair is the result of the country’s ability to stand up and fight through the turmoil. The economic repercussions of the “bailout” while, hopeful, may still not be enough to help our housing market recover from the immense distress we face as a nation. However, with the economy in such a difficult place, it seems that there is no other quick immediate solution to save what is left. The market is oversaturated with listing inventory and this “bailout” will hopefully deplete the mass housing for sale. In a buyer’s market, it is critical to move inventory quickly to stabilize the market conditions so that prices can equalize. The rescue plan will provide solutions for distressed home-owners and possibly even save the mass thousands out there who face foreclosure. Even so, the possibility of resolution from financial destruction is very real for the mass public so the immediate effects of the “bailout” may not impact the majority population who is suffering and losing their homes. It is hard to really predict the consequences of this emergency plan but the fact that our national governmental body has stepped in is a significant indicator that our country is in some pretty significant trouble. Our best bet is to listen closely, assess our personal situations and consult professionals who can direct and advise us to a better place. This economy and this market should correct itself and now with a helping hand should put us on the path to recovery. Who knows, this may be the case or this may just be the beginning. Regardless, our confidence should rest in our own decisions based on our own personal scenarios. While we depend on our country to do the right thing, the only final judge of that is ourselves.

Regard to our shifting market,

Helen Oliveri