Gabriel Libutti

Home renovations on sale Materials costs are plunging, and contractors are begging for work. Suddenly that long-postponed remodel is looking like a smart idea. (Money Magazine) -- If you're struggling to see a silver lining in the beaten-down real estate market, consider this one: It may be a rotten moment to sell your house, but if you've postponed a much needed renovation project on your home - replacing a rotting deck, repairing a leaky roof or updating an antiquated bathroom - now just might be the best time in years to tackle that task. The reason: Costs are starting to drop - in some cases, sharply - on everything from building materials to contractors' fees as the economy weakens and housing prices tumble. In fact, consumer spending on home improvements is off by 12% since peaking last year, according to Harvard's Joint Center for Housing Studies - and that works to the advantage of anyone willing and able to remodel now. "It's hard for homeowners to think about spending on their houses when real estate values are falling," says Kermit Baker, a senior research fellow at Harvard who tracks remodeling trends. "But with contractors hungrier for business, you'll be able to negotiate better prices, win other concessions and hire better-quality contractors than you could a year or two ago." Overall, experts say, you can expect to save at least 10% on the cost of a renovation and possibly a lot more, depending on where you live and the project you choose. And if prices on many remodeling materials continue to decline as projected over the next few months, the cost of home improvements should fall even further. Yet another benefit: Putting money into needed repairs and updates now should help your home maintain its value even as other house prices keep falling. Of course, not all renovations are created equal. Adding a home office or a swimming pool might be on your wish list, but these days neither is likely to give you much of a return on your investment. With home prices still in a free fall, it's more critical than ever to understand which projects will return the most on your investment and how to negotiate the best deal with the pros you hire to do the job. The following strategies should help. Cherry-pick your project Understand this from the outset: No matter what kind of repair or renovation you undertake, you can't count on the payback you'd have gotten a few years ago when home prices were rising steadily. According to a new study by Remodeling magazine, these days you can expect to recoup about two-thirds of your costs on a typical home improvement if you sell your home within a year after completing the job, compared with 87% in 2005, when home values were at their peak. That means you have to be especially careful in choosing which jobs to do, considering the urgency of the need (if that roof is leaking, you really have to fix it now) as well as what you'll pay in material costs, how much of the total bill you may recover and any extra benefits you may get. To the extent you have a choice, focus on projects with better-than-average returns that may yield additional savings in other ways. For example, installing new windows will cost $10,000 to $20,000 on average but return 75% to 80% of your investment (see "Payback time" above and to the right for the six projects with the best return). And those improvements have the added benefit of making your home more energy-efficient, so you'll also save on your electricity and heating bills. Plus, you may qualify for tax credits that will further offset the cost of making the changes. A host of home improvement tax credits for windows, doors, insulation and roofing were added or extended in the recent bailout bill; for the complete list, go to energystar.gov. Some exterior improvements also make a lot of sense right now thanks to sharply lower oil prices. That's because many petroleum-based products, such as asphalt and vinyl, are the core material in these renovations. The costs of these products had soared recently along with the price of oil but have started to drop, making this the best time in a while to replace your aging roof, repave your driveway or redo your vinyl siding. (See "Building blocks at a discount" above and to the right for a look at recent price changes in key remodeling materials.) Also think about limiting the scope of the project, since minor upgrades rather than major additions give you more bang for your buck today. For instance, if you modernize your bathroom, you can expect to recover about 75% of what you spent, but adding an entirely new bathroom will pay back only 64% of the cost of the job. Press for a price break... These days you'll find a glut of construction professionals vying for your business - a far cry from the situation a few years ago when it was impossible to get a reputable contractor to return your call and a six-month wait to start a kitchen remodel was the norm. How low can you ask remodeling pros to go? According to a new survey by the contractor referral site Angie's List, 70% of home builders and remodelers are willing to drop prices at least 10%, and 30% say they'll give even steeper discounts. "There's a larger pool of professionals fighting for these jobs, so a little negotiation may go a long way to get the best possible price for your project," says Angie Hicks, founder of Angie's List, which charges a monthly fee of $6 for access to customer reviews and references. You'll have the most leverage in the areas that have been hit hardest by the housing slump. But no matter where you live, you should be able to strike a bargain (for tips, see "Hiring a Contractor" above and to the right). Get bids from at least three remodelers, and insist that their quotes spell out all costs, including labor as well as materials (brand-name products where possible). Let each pro know up front that you are comparison shopping and that price, in addition to quality craftsmanship, will play a key role in deciding whom you will work with. With the bids in hand, you can then compare prices and start negotiating. Shopping around really paid off for Nancy Boris, who saved $2,800 on the cost of replacing the back patio of her 2,400-square-foot, three-bedroom home in Roseville, Calif. Boris, a nurse case manager, got bids ranging from $2,400 (from a contractor who didn't have insurance or references) to $5,800. The highest bidder eventually came down $2,000 in price to $3,800, but Boris ended up going with a pro who had better references for $3,000. ...but be wary of super-low bids As Boris discovered, it doesn't always pay to just reflexively choose the contractor who comes in with the lowest quote. In their eagerness (or perhaps desperation) to win business in these tight economic times, some less than scrupulous remodelers may cut corners to come up with that low bid or else leave off charges that they may tack on later, making the actual cost of the project higher than it seemed initially. Carefully scrutinize any bid that comes in significantly lower than the rest. Ask the contractor, politely but point-blank, how he manages to undercut his competition. Does he have a general liability policy and workers' compensation? If not, should one of the crew get injured on your property, you'll be liable. Is he using low-quality materials? Is everything you need to get the job done included in the bid? Then follow up by asking for references from previous clients and checking out his reputation and work history. To do so, go to contractorcheck.com, where for a fee of $13 you can get information about licensing and insurance as well as any legal actions taken. Sites like ContractorsFromHell.com and AngiesList.com can also provide valuable insights. Wring out extra concessions In addition to price breaks, ask for other perks while you're negotiating, like a faster completion or a more convenient schedule for work to be done, advises Sal Alfano, editorial director of Remodeling. Remember, homeowners nowadays are in the driver's seat. "With contractors working on fewer projects, you can expect better service," he says. "Even if in the end you don't get a significantly better price on your project, you should at least get better work done."

Is it time to dump your ARM? Some 1.5 million adjustable-rate mortgages reset soon. If yours is one of them, you need to decide whether to lock in your rate and refinance into a new loan. (Money Magazine) -- If you are among the 6.5 million homeowners who took out a low-rate adjustable-rate mortgage during the housing boom, you've probably spent the past couple of years waiting for your day of reckoning to come. After all, you've probably heard repeated warnings that when your ARM resets your payments would spike dramatically: an especially big problem if you used a low-rate ARM to stretch for a home you could barely afford. The good news is that scenario hasn't come to pass. Instead, interest rates have fallen to record lows, and when your ARM resets you'll probably see your monthly nut fall, not rise. But once the economy stabilizes, the government will start peeling back the policies that are keeping mortgage rates low. "Eventually rates are going to go up very significantly," says Greg McBride, a senior financial analyst at Bankrate.com. The Mortgage Bankers Association predicts fixed mortgage rates will reach 5.9% by the end of 2010 and 6.3% by the end of 2011. To see what could happen to your payments later on, look on your mortgage documents to find the cap, or the number of points your rate can move in any given year after the first reset (one or two is typical), as well as the lifetime cap on your loan. Then figure out if you should refinance now and what kind of mortgage you should get if you do. Stand pat if ... You plan to move in the next three years. In that case, the few thousand dollars you'll pay to refinance is likely to exceed any extra interest you'll pay on the mortgage before you move. You have less than 20% equity in your home. If you bought in the past few years and real estate values in your area have taken a big hit, you may not qualify for the best rates. "That makes refinancing less attractive," says Wilton, Conn. mortgage broker Tim Malburg, Homeowners with a jumbo mortgage (more than $417,000 in most areas) are held to an even higher equity standard. Refi to a 5/1 arm if ... You'll be in your home for three to five more years. In mid-September, ARMs that were fixed for the first five years cost about half a percentage point less than 30-year fixed-rate loans. Over a five-year period, that could save you almost $10,000 on a $300,000 mortgage. You have a jumbo loan. These large mortgages can feel like a rip-off right now, since rates for 30-year fixed jumbos are about a percentage point higher than those for smaller loans -- an unusually wide spread, says Keith Gumbinger, vice president at HSH Associates. That's because the government has been purchasing loans backed by Freddie Mac and Fannie Mae, which has artificially driven down conventional-mortgage rates. If you need a jumbo mortgage you'd knock about three-quarters of a percentage point off your rate by taking a 5/1 ARM. That would save about $3,300 a year for a half-million-dollar loan. Refi to a fixed-rate loan if ... You might be less attractive to a lender later on. If you'll need to take a big loan to pay your kid's college tuition, say, or think you might get laid off -- then it's worth doing the refi while you have the chance. You'll be in your home five years from now. While most experts think that rates will stay low for a while, they're not likely to get much lower, and there's no guarantee they won't jump unexpectedly. If you're planning to stay longer than five years, go with a 30-year fixed to eliminate any interest-rate risk, since rates on seven- and 10-year ARMs are only a notch lower than those on 30-year loans. And if you have any doubts about your time frame, lock in. After all, you don't want to be in this same predicament five or so years down the road. You'll pay more to lock in a fixed-rate mortgage today. But a couple of years from now, holding on to that adjustable-rate loan could get costly.

$8,000 home credit still in play Negotiations about whether and how to extend and expand the tax credit for homebuyers are moving quickly. Here are the latest developments. NEW YORK (CNNMoney.com) -- Confused about whether lawmakers will extend the $8,000 first-time homebuyer credit and what it would look like? That's understandable, since the situation is still very fluid. Here's where things stand. Support for the credit: There is still bipartisan support in Congress for extending the credit past Nov. 30 and making it available to more homebuyers. The Obama administration wants the credit extended for a "limited period," Treasury Secretary Tim Geithner and Housing Secretary Shaun Donovan said Thursday. They did not elaborate. What's on the table now: There appears to be a compromise deal that falls between the most and least generous proposals that have been put forth so far. "There is bipartisan compromise to extend the credit through spring and expand it to existing homeowners who are stepping up to a different home," financial policy analyst Jaret Seiberg wrote in a research note for Concept Capital's Research Group. The latest idea under discussion is a credit worth up to $8,000 for first-time homebuyers and up to $6,500 for homeowners looking to trade up to a bigger primary residence and who have already lived in their current home for five years. (CNN: Senate compromise may be in the works.) To qualify for the full credit, however, homebuyers must have adjusted gross income of less than $125,000 ($225,000 for married couples filing jointly). In addition, the credit would only apply to homes sold for $800,000 or less. Contracts to buy a home must be signed by April 30, 2010, and the deals must close by June 30 in order for a buyer to qualify for the credit. Rationale for extending the credit: Supporters of the credit say it has helped to boost existing home sales in recent months. Extending the credit would help further support sales, stabilize housing prices and generate jobs in the face of an expected rise in foreclosures next year, which is expected to put downward pressure on prices. If the credit is allowed to expire, they say, the housing market and the broader economy will grow moribund again. "The most fundamental argument for the credit is that nothing works in the economy if housing is falling -- it hurts household wealth and credit becomes tight," said Mark Zandi, chief economist at Moody's Economy.com. "[The credit] is a good insurance policy. It's vital to stem the housing price declines." What critics say: Though extending the credit has bipartisan support, it is not without its critics. Critics, while acknowledging that the credit has helped to generate additional home sales, say it has been poorly targeted and therefore not cost-effective. They point to estimates that only 10% to 20% of the nearly 2 million homebuyers who will have gotten the credit by Nov. 30 bought solely because of the tax break. In other words, a large majority of homebuyers who benefited from the credit would have bought their homes without it. By one economist's estimate, the government may have spent $43,000 for each sale that occurred strictly because of the credit. In a position paper published this week, the liberal Center on Budget and Policy Priorities said making the credit available to existing homeowners would not help stabilize housing prices or reduce inventory. 0:00 /2:24'Beautiful' homes for under $20K "When [they] purchase a new home, they simultaneously put their current home up for sale. As a result, there is no net effect on supply or demand in the housing market." Timing on a vote: An amendment to extend and expand the credit could be attached to a bill that would extend unemployment benefits and which could pass the Senate by next week. However, there's a chance the housing credit will be dealt with separately. The credit could be attached to another piece of legislation or put in a standalone bill with other proposals to extend tax breaks.

Home sales contracts rise for 8th straight month Real estate rally attributed to first-time homebuyer tax credit that expires at the end of November. NEW YORK (CNNMoney.com) -- The number of signed sales contracts to buy homes rose in September for the eighth straight month, according to a real estate industry report released Monday. The September Pending Home Sales Index from the National Association of Realtors (NAR) spiked 6.1% to 110.1, consolidating a 6.4% gain in August. It was the index's highest level since December 2006, when it stood at 112.8. The leap was far better than expected. A panel of analysts surveyed by Briefing.com had forecast a 1.2% rise. Analysts, including Lawrence Yun, NAR's chief economist, have traced much of the improvement to the government's first-time homebuyer tax credit program, which gives an up to $8,000 tax break to new homebuyers. It's estimated that between 200,000 and 400,000 additional sales will have been made because of the credit. "What we're witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month," said Yun. The credit lapses after Nov. 30, and the housing industry is bracing for a major turndown in sales if Congress fails to pass some kind of extension. "Clearly, buyers were eager to get business done before the credit's November expiration," said Mike Larson, a real estate analyst for Weiss Research. "So I wouldn't be surprised to see some give back in pending sales over the next month or two." Favorable long-term prospects Any fall-off should only be temporary, however, according to Yun. Market conditions are just so favorable for buyers right now that sales should rebound quickly should they suffer through a hangover following the tax credit demise. With home prices well off their highs and mortgage rates still extremely low, the cost of homeownership is well within the range for many Americans who are not homeowners today. There are, Yun estimates, about 3 million renters who are now financially well-qualified to buy a median-priced home. "As long as buyers do not overstretch and stay well within their budget, a sizable pent-up demand can be tapped among financially qualified potential buyers," he said. That will not translate into a new boom, however, according to Larson. "No explosion of pent-up demand will send markets to new heights," he said. "The economy is still not in fantastic shape." Housing markets certainly do not seem to be out of the woods, but this latest release added to a modest winning streak of positive recent reports. Prices appear to have stabilized, with the S&P/Case-Shiller Home Price index up four months in a row and completed sales of existing homes at their highest level in two years. Foreclosures, however, continue to plague many markets, adding to supplies on homes for sale, according to Yun. "An excess of homes remains on the market despite recent improvements," he said. "Although current inventory is getting closer to price equilibrium, foreclosures will continue to enter the pipeline." Increased pending sales are a forward-looking indicator since contract signings precede actual closings; they typically take place two to three months later. Although some contract signings fall through, a jump in signings in September usually means NAR statistics on December existing home sales will improve.

Millions of homes to get smart meters Government announces $3.4 billion in grants to help pay for 18 million meters as part of stimulus plan. NEW YORK (CNNMoney.com) -- Some 18 million smart meters are set to make their way into American homes as part of the economic stimulus plan focusing on energy efficiency, Energy Department officials said Tuesday. The meters, which are designed to more effectively communicate with utilities and appliances, and help consumers manage their electricity more efficiently, are being distributed by utilities around the country with partial funding from the federal government that was allocated under the stimulus plan. The 18 million meters represent roughly 13% of all electricity meters nationwide. Ultimately, the administration hopes to distribute 40 million smart meters over the next few years. The smart meters are part of a wider government effort to upgrade the nation's aging utility grid. The government announced $3.4 billion in funding Tuesday to help move the country toward a so-called smart grid. Utilities are putting in another $4.7 billion in matching funds. According to the White House, these investments could reduce U.S. electricity use by 4% a year. 0:00 /1:37Energy Star label under scrutiny The money is part of nearly $100 billion in spending and tax cuts the government authorized under the stimulus plan for a variety of energy projects. Other projects announced Tuesday include the modernization of electric substations and transmission centers. All told, 100 projects were announced Tuesday in 49 states that are expected to create tens of thousand of jobs across the country. The White House billed it as the largest single energy grid modernization effort in the country's history. Experts have long said the country needs to update its electricity grid, much of which was built during the early part of last century, if it is to deliver power more efficiently and handle electricity generated from sources such as wind and solar. The funding announced Tuesday is just a fraction of what experts say is needed to build new transmission lines, computerize substations and meters, and build storage devices for a modern utility grid