Money flows to home remodeling

Contractors report new willingness to spend and to lend

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GREENSBORO, N.C. -- Claudia Brown, a kitchen and bathroom designer for Home Depot, is witnessing what she's rarely seen in the past six years: customers knocking down walls again.

"People aren't hesitant; they're getting what they want," Brown said this month after selling a kitchen project costing more than $13,000 and a bathroom remodel for $3,700.

Spurred by rising home prices, homeowners who spent the worst housing downturn since the Great Depression taking on only must-do repairs or minor upgrades are again starting wish-list projects, even in the face of still-tight lending.

Spending for U.S. remodeling in the 12 months through Sept. 30 may climb 20 percent from a year earlier to $145.5 billion, according to a forecast by Harvard University's Joint Center for Housing Studies.

"When the sky is no longer falling, when prices are improving, homeowners are willing to invest," said Scott Mosby, co-owner of St. Louis-based Mosby Building Arts, an architectural and remodeling company.

Mosby, 59, is renovating the basement of a St. Louis home for $230,000, including $40,000 to add a wine cellar. He estimates he'll collect an average of $130,000 on major projects this year, up from about $90,000 in 2010.

After years of trimming costs, firing workers and slowing store openings, Home Depot and Lowe's recently shifted to preparing for the wave of remodeling. Home Depot acquired a company that measures flooring installation in houses in May and another that remodels kitchens and baths in October.

Lowe's is hiring 9,000 permanent part-time workers this year as it sells more appliances and bathroom fixtures. Both retailers have improved online services allowing homeowners to design projects and communicate with employees as work progresses.

Homeowners are giving themselves "the psychological permission to spend it and feel good about it," Lowe's CEO Robert Niblock said March 13.

Niblock told analysts consumers are experiencing "tight credit conditions," impeding the pace at which housing and the home improvement sector will grow over the next two years. Home Depot CEO Frank Blake likened the recovery to a "gradual thawing" under pressure from credit constraints and less disposable income for customers.

A Federal Reserve survey of banks, released Feb. 4, found that 59 percent of institutions basically did not change credit standards for approving home-equity lines of credit at the end of 2012, and 54 percent said their willingness to make consumer installment loans was basically unchanged.

U.S. home prices slumped for almost six years through March 2012, declining by more than a third. In the fourth quarter of last year, rebounding prices boosted household wealth to the highest in five years, according to the Fed.

Ready to buy

Home Depot's Brown, 44, says she doesn't have time for lunch some days as she fields about 50 queries a week from homeowners, real estate agents helping clients dress up homes to sell and investors flipping real estate. Three out of five customers who ask Brown for a price quote on a renovation actually have work done, compared with one in three customers three years ago.

Bill Smead, whose Seattle-based investment firm owns 180,447 Home Depot shares, sees two waves of consumers spending to fix up houses: younger adults making their first purchases and longtime homeowners like Smead himself.

Smead, 54, and his wife are downsizing and selling their 4,400-square-foot Shoreline house after spending more than $110,000 on improvements such as new windows and a $2,600 kitchen range. "The housing recovery is shifting into gear," said Smead, who oversees $324 million as chief executive officer of Smead Capital Management.

Jim Kreipe, owner of Square Deal Remodeling in Portland, said that for the first time in five years, he's doing a renovation for which a bank loaned money based on the value of the improvements, not just the home's equity.

"That is a sure sign that from the bank's point of view that housing is stabilizing and isn't going to get any worse," Kreipe, 60, said.

Kreipe, who started his company two decades ago, is wrapping up a two-story addition to a Portland home for $200,000, about four times the value of his average project. The homeowners first approached him about the expansion about three years ago and proceeded in December.

"There is a growing need, a buildup," Kreipe said. "It's not an all-out assault of work as it was five years ago. But you can only put off work on your home for so long."