Underwater homeowners remodel homes, add space, amenities

With new-home sales in Las Vegas at their lowest level on record, custom builder Chris Stuhmer had to alter his business plan to maintain cash flow and keep workers employed.

The president of Las Vegas-based Christopher Homes launched a 30-day makeover program to renovate and remodel existing homes, a rising trend among millions of homeowners who are stuck with negative equity in their properties.

There are some 200,000 or more underwater homeowners in Las Vegas. They can't sell, refinance or relocate, so they're breathing new life into their homes by changing design, adding space, catching up on needed repairs and upgrading amenities.

"We're definitely seeing that activity in Vegas," said Stuhmer, who has built more than 1,800 homes around the valley in 30 years. "We're ground zero of the real estate collapse. People are staying in their homes because they feel they're undervalued, and they are. If they're going to be in a home for five, six years or longer, they elect to upgrade and update with new styles and new designs. They will see a return when they sell it."

Also, existing-home sales increased 15 percent in Las Vegas last year to 58,000, many of them foreclosures and short sales purchased by investors who rehabilitate the homes for rental or resale.

That's driving construction employment and spending on home improvements.

The number of people working in residential remodeling grew 5.8 percent in December to 250,700 from a year earlier, data from the Bureau of Labor Statistics show. It was the highest growth since December 2006.

The BuildFax residential remodeling index rose to 127.4 in December, up 22.8 percent from the same month in the previous year. The index, which is based on construction permits filed with local building departments, was down 10.5 points from 137.9 in November.

"Remodeling activity slowed from November to December, an expected change seen in previous years around the holidays," said Joe Emison, vice president of Austin, Texas-based BuildFax.

Areas that had month-over-month losses in December were the West (down 7.7 points), Midwest (down 16.5 points), Northeast (down 1 point) and South (down 5.4 points).

Home improvement will bounce back the most this year since 2006, said Kermit Baker, senior fellow at Harvard University's Joint Center for Housing Studies. He projected $112.4 billion in total spending for 2012, mild growth in the low- to mid-single digits from a year ago.

Another sign of increasing construction activity is the Architecture Billings Index, which reached positive territory for the third month in a row at 50.9 in January. Any score higher than 50 signals an increase in billings for design services.

The upturn is encouraging because it's being reflected across most regions of the country and across major construction sectors, said Baker, who is also chief economist for the American Institute of Architects.

"Because we still continue to hear about struggling firms and some continued uncertainty in the market, we expect that overall economic improvements in the design and construction sector to be modest in the coming months," he said.

There may be some slowing before remodeling activity picks up. A couple of Las Vegas custom home contractors who asked not to be identified said they'll take anything to survive.

"It's not like it was before 2008," one said.

Stuhmer of Christopher Homes said most of his remodeling work is in the kitchen and bathroom, and adding a master bedroom suite or specialty rooms such as a home theater or home office. The jobs range from $15,000 to over $1 million, with an average of more than $100,000.

"We've been doing them as requested," Stuhmer said. "When real estate started declining in 2008 and 2009, we put a stronger emphasis on remodels. We were pleasantly surprised with the growth. It's been picking up dramatically and we're looking forward to 2012. We don't expect it to take off, but gradually build and improve."

Home improvement retailers are starting to see a bump in sales. Atlanta-based Home Depot last week reported sales of $16.0 billion for the fourth quarter, a 5.9 percent increase from fourth quarter of 2010. Comparable store sales for the quarter, or sales at stores open at least a year, were up 5.7 percent.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.