Moving up, not out

After the birth of their second child, Patricia and Brent Friedman quickly realized they had outgrown their Spanish-style home in Silver Lake. So, with a 4-year-old and a baby in tow, the couple started walking through weekend open houses in Los Feliz, Glendale and Silver Lake and scouring the real estate listings.

“We were looking at $1.3-million fixers all over the place,” said Brent, 40, a television and film writer. “And I’m not talking minor renovations. I am talking about bathrooms that didn’t work.” Six months of frustrated searching persuaded the Friedmans to stay put and remodel.

As prices for real estate have boomed the last few years, many homeowners seeking larger homes are finding little on the market that seems a good value. Unable to find houses meeting their requirements, they are pulling equity out of their current homes to expand them.

Americans spent $130.4 billion in 2003 remodeling houses and condos -- a 7.3% increase over 2002, according to the Joint Center for Housing Studies at Harvard University. At the same time, housing sales and prices went up nationwide, as well as locally, with Los Angeles County home values up more than 20% year-over-year every month since July, DataQuick Information Systems reported. Sales in the region rose 4% from 2002.

“The two trends go hand in hand,” said Kermit Baker, director of the university’s Remodeling Futures Program. “It’s been a strong market, nationally, for remodeling, but the sales market isn’t hurting at all either. The two are working in concert.”

Although Harvard does not break out remodeling figures for Southern California, Bill Simone, president of the Los Angeles chapter of the Remodelers Council of the National Assn. of Home Builders, reported that his business alone was up 21% in 2003 -- on top of double-digit gains the previous two years.

“I’ve seen this trend gaining momentum in the last two to three years,” said Simone, with Custom Design & Construction in Los Angeles.

A further indication of the movement to stay put and invest in existing homes is the amount of money now going into reconstruction.

“Our average remodeling project was $60,000 to $70,000 a few years ago. Now it’s $200,000,” he said. “That’s the scope of the work.”

Many home shoppers in the Southern California real estate market have discovered that, even if they did move up, the new home would need extensive work anyway, he added.

The flurry of remodeling in Southern California and at all economic levels is the result, in part, of low interest rates and instability in other investment markets. “People are still leery of investing in the stock market and other intangible investments, but people are much more open to investing in real estate and remodeling,” Simone said. “It’s sticks and bricks. You can see it and feel it.”

The Los Angeles Department of Building and Safety, which inspects remodeled homes, is bearing the brunt of the workload, according to Bob Steinbach, assistant bureau chief with the department.

Inspection permits for remodels, additions and other changes costing less than $100,000 were up almost 6% for the fiscal year ending June 2003, compared with the year before. For renovations and changes between $100,000 and $500,000, the increase was nearly 6.5%.

“The amount of work visiting homes in need of inspection after these types of jobs is truly stretching our staff,” Steinbach said. “The increase has been pretty dramatic.”

The Friedmans, for example, spent $40,000 to enlarge their baby’s bedroom and to create two more functional bathrooms. This is the third time the couple has remodeled since purchasing the house in the low $400,000s in 1996. In total, the three remodels have cost the Friedmans $200,000 and enlarged their 2,400-square-foot home to a comfortable and efficient 3,100 square feet.

Based on other sales in the neighborhood, the Friedmans estimate that their house now is worth between $1.1 million and $1.2 million.

“Even if the market comes crashing down, I still think we will get our $200,000 back,” Patricia Friedman said. “At least we feel this was a wise investment.”

Linda Brettler, a Los Angeles-based architect who has worked with the Friedmans, said their story is common.

“Initially, when I tell my clients how much it’s going to cost to remodel, it scares them,” she said. “Then they look for a new house and see how insane prices are. They come back to me, ready to go.”

Even though remodeling can be expensive -- and property taxes can go up based on adding square footage and the assessed worth of the remodel -- the savings can outweigh moving up. “I have a client that would need to pay $600,000 to $700,000 for a remodel in the Larchmont/Hancock Park area of town,” Brettler said. “But to find a house in that area, that would be the size they needed, would cost $2.5 million. It’s that insane.”

John and Elaine Sousa are not simply remodeling. The Glendora couple is planning to double the home after not being able to find a suitable home on the market.

“We saw a lot of houses that weren’t worth it,” John Sousa said of his search of at least 30 homes last spring and summer. “We started appreciating our house even more.”

The Sousas plan to add a second story, convert their garage into living space, build a new entryway and create a new kitchen-family room.

John Sousa paid $157,000 for the house 11 years ago when he was single. He has built up about $150,000 in equity -- a large portion of which he cashed out to fund the remodel. Their overall budget for the remodel: about $110,000.

The work is expected to take a year, during which time John and Elaine Sousa and children, Abigail, 4, and Olivia, 2, might relocate to a trailer in their backyard. They would rather trade inconvenience for peace of mind.

“This is doable because of the equity we’ve built,” John Sousa said. “I want to live within my means.”

It’s not just growing families who are looking for larger quarters. Other owners are seeking more space for home offices.

Ted and Linda Cressner, who live in the Larchmont area of Los Angeles, are adding 700 square feet to their 2,900-square-foot home.

The couple, who bought in the $400,000 range in 1981, looked in their neighborhood from late 2002 until last spring for homes around $500,000. They even considered leaving the area, as well as their close friends, and house-hunted as far afield as Calabasas, about 20 miles away. But after only finding tiny homes on small lots, they decided to stay in the neighborhood they adore.

“We really love our neighbors,” said Linda Cressner, 50. “The thought of moving any other place was not OK.”

The Cressners’ remodel will create an office for their commercial real estate appraisal business and a family room as well as renovate the kitchen and enlarge the second story to accommodate a full master bedroom and bathroom.

The cost: $600,000, including re-flooring the entire house, upgrading the electrical system, landscaping and purchasing new furniture.

Because the house was recently appraised for $1.1 million, they’ve pulled out equity for the construction and are supplementing their remodeling funds with savings. Even after the refinance, their monthly mortgage payment will stay about the same because of low interest rates.

“We are stuck here forever,” Ted Cressner said, “but we love it.”

Allison B. Cohen can be reached at [email protected].