Remodeling activity is highest in seven years, according to key measure

An important indicator of remodeling robustness jumped five points this past quarter, climbing back to 2005 levels, according to the National Association of Home Builders. The Remodeling Market Index hit 50, meaning that more contractors are reporting higher activity than lower, compared with three months ago. The activity was particularly strong in owner-occupied homes, indicating that homeowners are regaining confidence in the value of their houses.

"The strength of the RMI, especially in owner-occupied properties, shows that homeowners are investing in remodels as home prices stabilize," said George Moore Jr., NAHB remodelers chairman. "As owners become more confident that investments in housing will hold their value, they are beginning to undertake projects to improve their comfort that they had been putting off."

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Growth was seen in all three indicators of market conditions: maintenance and repairs rose to 56 (from 50), minor additions and alterations to 51 (from 47) and major additions and alterations to 49 (from 42). Projects that cost $25,000 or more are still lagging behind smaller renovations and repairs but are showing strength, according to the NAHB.

As we wrote in "Get the kitchen luxury look for less", you can get a beautiful kitchen that's functional and efficient and only looks expensive by using lower-cost materials that were top performers in our tests. For example, engineered wood flooring, which has a veneer of real wood over a substrate, can be floated over the subfloor, saving on installation costs. Vinyl flooring is another less expensive option with some very convincing faux patterns, including wood and natural stone.

If you covet stone countertops, shop around for remnants at the stone yard or choose a domestic marble such as Danby from Vermont. Laminate, the most affordable countertop option by far, has come a long way with faux patterns that look like real stone. Formica has even eliminated the telltale black line along the edge. If your cabinets need replacing, you can save 30 percent or more by choosing semi-custom units. Stock units save even more, without necessarily sacrificing style.

Bathroom remodels are another good investment. (Check out our bathroom remodeling guide.) Whatever you do, the professionals advise that you don't skimp on labor and that you do plan ahead. Making changes after the project is underway is guaranteed to break the budget.

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