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Adding on, remodeling picking up steam in San Diego County

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Even as soaring home price increases have showed recent signs of slowing, mortgage interest rates have begun to climb, keeping pressure on affordability with only 9 percent of San Diego County households able to afford a median-priced home. In lieu of purchasing a new home, a growing tide of current homeowners are looking to room additions and alterations as an alternative.

This is evident when looking at the value of permits pulled for add-on construction.

Through November of this year permits have been pulled for $390 million worth of residential addition and alteration construction, which surpasses the figures from the previous two years, according to Construction Industry Research Board (CIRB) data. No month this year has experienced permits pulled for less than $27 million.

"The building climate (as far as room additions and remodeling) is about as good as it gets right now ... it has a lot to do with new home prices," said Larry Zolezzi, president of El Cajon-based L.Z. Construction. He said everything involved with purchasing a new home, including moving expenses and real estate fees, makes a room or floor addition an attractive alternative to current homeowners. L.Z. specializes in room additions and second story add-ons, of which Zolezzi said the latter is a very popular choice.

Other similar companies in the county are also experiencing a high volume of business.

La Mesa-based Lars Construction-Home Remodeling pulled 70 permits this year, mostly for single- and two-story additions, which might include a bathroom, according to Brandon Spann, project designer. He said 70 permits represents a very busy year.

K-Co Construction, a larger room addition and remodeling company based in San Diego, represents an example of the demand for additions as it reached $6 million in sales this year.

According to Dave Konstantin, president of K-Co, the company only does jobs that are within five miles of the office, most of which are whole house remodels. The company will also not accept any job valued under $30,000.

"As we've gotten more successful, we don't want to drive all around" or work on smaller projects, Konstantin said.

Unlike other companies that receive a majority of their business from homeowners who have owned their home for more than a few years and want to stay put, K-Co works with new homeowners, who use the equity from their previously sold home to fix up their new one.

Besides bedroom additions and second-story add-ons, kitchen and bathroom remodeling companies throughout the county also experienced solid business this year.

Greg Holst, remodel consultant for Poway-based Remodel Works Bath & Kitchen, said all months this year were fantastic with the exception of December, as remodels slow during the holidays.

Peter Hamm, president of La Jolla-based Bath & Kitchen Co., agreed, saying he's seen a tapering off of business during the past few months.

However, companies such as newly formed Improve Your Home Inc., a San Diego-based kitchen, bath and interior remodeler, continue to experience business through the holiday season.

"We're still seeing a lot of remodeling because interest rates are favorable," said Dennis Dollar, president of Improve Your Home, adding that the rise in room additions means his company will be installing more cabinets and windows.

Aside from the amount of work add-on and remodeling companies are experiencing, they're all affected by construction material increases, which in turn affect the price of jobs and the value of permits pulled.

"That's the biggest cost (construction material increases)," Spann said, adding concrete, steel, stucco and rebar have all increased.

In anticipation of future increases in lumber and plywood, K-Co Construction purchased and stockpiled about 20,000 pieces of plywood. "It's hard (to deal with large material increases) because a lot of times we write a contract and don't get a permit until three months later," Konstantin said.

According to Holst, construction materials increase in price every year, typically 2 percent to 4 percent. However, this year there have been increases as high as 7 percent. But if residential construction begins to flatten or decrease, it could be a catalyst to lower material prices, according to a Grubb & Ellis report.

Nationally the number of permits pulled, which determines future construction, increased 2.5 percent in November, according to the U.S. Department of Housing and Urban Development.

In the West, total permits pulled increased by 5.6 percent. Additionally, builders broke ground on 2.123 million homes in November, up 5.3 percent from a revised 2.017 million in October. From these figures it would appear large material increases will continue, but the county has seen a decline in permits pulled.

As of November, a total of 14,582 permits have been pulled for residential units, which compares to 15,874 permits pulled as of November of last year, and 16,627 permits pulled in 2003, according to the CIRB.

In spite of the possibility of future increases in the cost of materials, those in the add-on and remodeling business remain optimistic.

"I do expect business to stay the same," Konstantin said. "I think the economy will remain the same, and housing prices will soften, which will help us more."

Following along the same lines as the residential market, the nonresidential addition and alteration market was strong in 2005 with permits pulled for nearly $445 million worth of alterations and additions through November. This compares to permits pulled for more than $440 million worth of additions in 2004, and more than $366 million worth of additions in 2003.

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