Remodel a Home in a Shaky Market?

The troubled housing market isn’t just hurting homeowners who want to sell, it’s torpedoing incomes for builders and remodelers as well.

As a result, contractors have cut bids by 20% in many parts of the country, according to a survey by The Wall Street Journal, which adds that many contractors are willing to take on small or otherwise unappealing jobs they’d have turned down a few years ago.

So maybe this is a good time to redo the kitchen or bath, build a deck or finish a basement.

But does it make sense to put money into a home when the housing market is so shaky?

In the most extreme case, like that of a homeowner who will abandon a property to the lender, it clearly makes no sense to pour good money down the drain. Most walk-aways involve properties that aren’t worth as much as is owed on the mortgage.

But improvements can make sense for people who plan to stick around for a while. Some homeowners would like to trade up but can’t, either because they cannot sell the homes they have or cannot get a new mortgage. Other people are stuck where they are because of the bad job market. For those who cannot move, a renovation can be a good way to make the most of the situation.

Of course, it always makes sense to get a bargain. A redo is certainly more appealing if it can be done for $8,000 instead of $10,000.

But the sad fact is that most home improvements don’t add as much value to the property as they cost. A survey by Remodeling Magazine found that in 2008 a $61,000 basement refinishing added only $44,500 to the home’s resale value.

That 73% return on investment was fairly typical. In fact, none of the more than two dozen projects surveyed added as much value as it cost.