Ask the Expert: Attic Remodels, Housing Starts and Economic Indicators

Q.  I have a large unused attic, and I’m considering remodeling it to turn it into a bedroom Is this a good idea?  Does it help on resale value?

A.  Converting unused attic space into a bedroom is an excellent way to gain valuable living area without having to build an addition. An attic bedroom is also a good investment, as long as it is built to code, with permits. According to Remodeling Magazine’s annual Cost vs. Value survey, an attic conversion in Los Angeles returns more than 87% of the original cost of construction.

To protect the value of your investment, you’ll want to make sure your remodeled attic is a top quality space with adequate storage, sound insulation, and safety equipment. Here is a list of items to consider:

•  Consider adding a bath in any attic remodel. An attic space without a bath is decidedly less useful as a bedroom or guest accomodation; therefore, your return on investment at resale will decrease by half.

•  Adequate insulation in your remodeled attic is a primary concern for year-round comfort. Insulation between the rafters that support the roof is the single most important factor in insulating the attic. Don’t forget to insulate “knee walls” as well (the walls out to the sides where the ceiling slopes down to less than standard height).

•  Extend your existing heating and cooling system. HVAC is a key component when it comes to keeping the attic within a comfortable temperature range. Make sure the existing system can handle the extra load of additional square footage, and that you create zones for efficient heating and cooling.

•  Consider electric baseboard heaters, which will keep the attic warm at very low cost. This is a great alternative to zoned HVAC, and a nice addition regardless.

•  Small air conditioners also can supplement or replace a central air conditioning system.

•  To provide hot water to your attic bathroom, consider a “tankless” or on-demand water heater.  Save on costs by lining up your attic plumbing over existing plumbing below.

•  Sound dampening Using thick carpet, padding, and a subfloor will keep noise transference to a minimum. If preventing sound transmission is especially important to you, consider products designed specifically to block noise that go between the subfloor and flooring products, or add fiberglass between floor joists.

•  Providing a safe way out in case of a fire is of utmost importance. In the case of a remodeled attic, a safety ladder should be available right next to a window.  Be sure to study local codes carefully to meet all requirements, and be sure all guests know where the ladder is located.

Remodeling Magazine uses as a basis for their cost the following scope of work: Convert unfinished attic space to a 15-by-15-foot bedroom and a 5-by-7-foot bathroom with shower. Include a 15-foot shed dormer, four new windows, and closet space under the eaves. Insulate and finish ceiling and walls. Carpet floor. Extend existing HVAC to new space; provide electrical wiring and lighting to code. Retain existing stairs, but add rail and baluster around stairwell.

Now for their cost estimates: The average cost per square foot to convert an existing attic space to a usable and habitable room is $225 per square foot. Look at the scope of work above to see how yours matches up. If you don’t add a bath, the cost will go down; if you must raise the roof, your cost will be higher.

Most important, return on investment: an attic remodel returns approximately 88% of investment at resale. Averages in the Los Angeles area: $60,135 spent, $52,749 cost recouped at sale, for an 87.7% ROI. That’s even higher than the national average of 81%.  What a great return on investment for a room you can enjoy during the time you spend in your home, and that was previously unused space!

Q.  Why do economists seem to report on new home sales or housing starts as economic indicators?  Aren’t they just a small part of the real estate market?

A.  Housing plays a substantial role in the U.S. economy. Housing is considered a leading indicator of economic cycles. The housing market will slow in advance of a recession, indicating an economic contraction. Conversely, the housing market tends to expand before the end of a recession.

One method of measuring the impact of housing in the overall economy is to calculate the total amount of capital exchanged in home construction, remodeling, and fees associated with the buying and selling process. Together, this sum is known as the residential fixed investment (RFI).  Looking at the above description, you can see that the largest slice of the RFI pie is home construction and remodeling.

The RFI has averaged 4.8% of the U.S. gross domestic product (GDP) since recordkeeping began in 1947. If you add household-related investments, furnishings and rents to the RFI, the contribution of housing to GDP has averaged about 21% since 1947.

The latest report for new home sales showed a 6.2% monthly increase. That left the inventory of new homes for sale at the lowest level in nearly four decades. With interest rates at historic lows and a renewed buyer tax credit incentive, demand for housing is again peaking.

Where there is a demand, expect someone to fill it.  Construction money is loosening up once again, allowing home starts to begin.  Look for builders to start building soon and the most important component of the RFI — home construction — to increase.

If historical trends continue, this bodes well for the overall economy.

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