Five costly reno mistakes to avoid

Shelley White Globe and Mail Update

I recently wrote about my kitchen renovation for Home Cents, detailing how I managed to keep my budget under $25,000 while still ending up with a functional and beautiful room.

There were a lot of comments (thanks for those, by the way) - some people thought I’d paid too much, some thought I’d paid too little. But there did seem to be a consensus that the post demanded some photographic evidence. So, due to popular demand, here are the before and after photos of my kitchen renovation. And please note: I took them myself, so excuse my not-quite-awesome camera skills.

Although I’m enormously pleased with how the renovation turned out, I certainly wouldn’t say the project was free of mistakes. In fact, there are some small things I might do differently if I had to do it all again (you may spot a couple of those in the photos, in fact).

So how can you avoid renovation missteps before they happen? HGTV has put together a useful collection of the 25 Biggest Renovating Mistakes. It’s quite a comprehensive list, but here’s a sampling of some of the factors I could relate to:

Gutting Everything
It can be tempting to want to just tear everything out - including the walls - and start from scratch. But that is where the additional costs can come creeping in. My contractor wisely elected to take a look inside the wall we were going to take down before totally ripping it out. Once we found out that tearing the wall would add challenges and money to the job, we changed the plan and kept the wall.

“I see this time and time again where people just start, and they think they’re going to pull a piece of wallpaper off, and by the time the process is over, they’ve completely gotten themselves into a deep, dark hole that’s very difficult to get out of,” says Mr. Eric Stromer, host of home reno show Over Your Head.

Inaccurate Measurements
I measured once, twice, three times and then again before ordering cabinets. My contractor was also meticulous with his measurements, but I could see how things could go quickly off the rails is someone was sloppy or rushed.

When dealing with counter tops, always choose a company that will come and do the measuring for you, preferably using a cardboard template. That way, the onus is on them to ensure it fits correctly. That also allows you can take a look at the template and make sure you’re getting the shape you want. When you’re talking about a slab of stone worth thousands of dollars, you don’t want to take any chances.

Going Too Trendy
“People often make the mistake of wanting to be too hip and trendy in their new home by picking the latest, hottest, coolest things,” says Ms. Carmen De La Paz of HGTV show Hammer Heads. “What they don’t take into consideration is that trendy means that it’s short term.”

Five years ago I had my heart set on aqua-colored glass tile for my kitchen back splash. Sure, it would have looked good for a couple of years, but take it from someone who really loved her royal blue and bright yellow kitchen when she painted it 11 years ago – your taste will change. Unless you’ve got the extra cash to redo your kitchen, the best thing to do is keep it classic and simple. I think our choices will stand the test of time, but you can be the judge of that.

Ignoring Lighting
Hammer Heads carpenter Ms. De La Paz put it this way: “Another mistake that homeowners will often make is not taking into consideration the lighting in their home. The lighting in your home can completely change the colors, the feeling, the ambiance.”

In other words, ignore lighting at your peril. When I first planned our new kitchen, I completely forgot about lighting. Our old kitchen had one overhead lamp that cast a lot of shadows. Thanks to our contractor’s suggestions, we’ve got a number of pot lights on a dimmer plus under-cabinet lighting, and the difference is vast.

Failure to Anticipate Chaos

Now that it’s over, I can look back on our renovation experience and think, “It was a piece of cake.” But around week three, our kitchen was an utter mess. For readers that wondered why my family and I spent $2,200 to rent a condo instead of sticking it out at home – that place was a dust pit. Moving out was essential for our sanity and our health - drywall dust is not good for anyone.

Your reno might go smooth as molasses, but just in case, it’s a good idea to assume it will be dustier, messier and more annoyingly inconvenient than you ever could have imagined.

lawlessbrown.com

Average House Prices a Misleading Gauge of the Health of the Canadian Real Estate Market: CIBC

Detailed analysis shows a highly segmented market that will see prices drop over time, but preconditions for a market crash don't exist

TORONTO, July 7, 2011 /CNW/ - The Canadian housing market is becoming highly segmented and multi-dimensional which is making traditional measures, like average prices, increasingly irrelevant in gauging the health and state of the sector, finds a new report from CIBC World Markets Inc.

"Glancing at popular metrics such as the price-to-income ratio or the price-to-rent ratio, it is tempting to conclude that the housing market is already in clear bubble territory and a huge crash is inevitable," writes Benjamin Tal, Deputy Chief Economist at CIBC, in his latest Consumer Watch Canada report.

"Tempting, but probably wrong. When it comes to the Canadian real estate market at this stage of the cycle, any statement based on average numbers can be hugely misleading. The truth is buried in the details—and there the picture is still not pretty, but much less alarming."

He notes that while the average house price in Canada rose 8.6 per cent on a year-over-year basis in May, that number slows to 5.6 per cent if you take Vancouver out of the picture. Remove Vancouver and Toronto and the average price increase drops to 3.7 per cent.

By digging into the details on the high profile Vancouver market he found that the gap between average and median prices is reaching an all-time high. While the average house price climbed 25.7 per cent on a year-over-year basis to more than $800,000 in May, he found that by removing properties that sold for more than a $1 million there was a much more moderate price appreciation in the market. It also reduced the average sale price by $220,000 to just over $590,000.

"What makes Vancouver abnormal is the high end of its property market," says Mr. Tal. "And in this context many, including Bank of Canada Governor Mark Carney, point the finger at foreign—mainly Asian wealth—as the main driver here."

Data on the extent of the role that Asian investors have played in Vancouver housing prices is quite limited. Mr. Tal's analysis of data obtained from Landcor Data Corporation suggests that only 10 per cent of the nearly 4,500 transactions involving foreign money over the past five years were above the $1 million mark, with an average purchasing price of just under $600,000.

According to the information provided by Landcor, foreign money accounted for only 2.6 per cent of all sales during the same period. However, Mr. Tal believes that could be a serious underestimate, as it is based on where property tax assessments are mailed, and would exclude offshore buying on behalf of children or other local proxies. "There are many reasons to believe that a significant portion of what is perceived to be buying by offshore investors is, in fact, driven by Chinese immigrants that are integrated into the community but still maintain strong links to mainland China, with many residing and working in China while their family establishes roots in B.C."

"Looking beyond the average price numbers reveals a highly segmented and multi-dimensional market that is probably influenced by different forces," says Mr. Tal. "But even a multi-dimensional market can overshoot—and the likelihood is that prices in the Canadian market and its sub-segments are higher than what can be explained by factors such as income growth, rent and household formation. Given that, the housing market will eventually correct. The only question is what will be the mechanism of that correction."

Mr. Tal feels the price correction in Canada will be gradual as the two key triggers for a price crash - a significant and quick increase in interest rates and/or a high-risk mortgage market that is very sensitive to changes in economic factors - are not at play in Canada.

"In Canada, a sharp and brisk tightening cycle is unlikely. The market expects a gradual increase in short-term rates in the coming years. The rising number of mortgage holders that carry a variable rate mortgage will be the first to feel the pain. But if history is any guide, they will return quickly to the comfort of a five-year fixed rate the minute the Bank of Canada starts hiking."

He also believes that the country is in relatively good shape when assessing the two sub-segments of the mortgage market that traditionally account for most defaults: mortgage holders that carry a debt-service ratio of more than 40 per cent and those with less than 20 per cent equity in their house.

Just over six per cent of households have a debt service ratio of more than 40 per cent—a number that has risen by a full percentage point since 2008. "However, this ratio is still well below the ratio seen in 2003, when the effective interest rate on debt was more than a full percentage point higher, and no correction in house prices ensued," adds Mr. Tal.

"All other things being equal, even a 300-basis-points rate hike by the Bank of Canada would take this ratio to only just over eight per cent. Not surprisingly, Vancouver has the highest ratio of households with high debt-service ratio, followed by Toronto."

A little more than 17 per cent of the Canadian residential real estate pool is in properties with less than a 20 per cent equity position, a number that has been rising over the past few years. More than 80 per cent of households with less than a 20 per cent equity position are first time buyers.

"Digging deeper and looking at the households with both low equity positions and high debt-service ratios, we found that this fragile segment of the market accounts for only 4.6 per cent of total mortgages—a number that has been on an upward trend over the past few years," says Mr. Tal. "Shock the system with a 300-basis-points rate hike and that number would rise to a still-tempered 6.5 per cent. Historically, even in that group, the default rate has been well below one per cent. Thus, short of a huge macro shock, there does not appear to be the risk of large scale forced selling that would typically be the trigger for a precipitous plunge in the national average house price.

"As a result, while house prices are likely to adjust as interest rates eventually climb, the national pace of any correction is likely to be gradual. That could still entail a period in which housing under performs other assets as an investment class, until rising incomes and a tame price trajectory bring the market back to equilibrium."

The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/cw-20110707.pdf.

lawlessbrown.com