Fancy remodels are becoming a thing of the past, as homeowners and banks become more conservative with their cash.

Got work? That's the question of the day for housing and remodel contractors throughout the U.S. With the mortgage money supply tightening up, homeowners are pulling back from the high-end remodel projects that were so popular only a couple of years ago.

Days of excess

Back when home prices were skyrocketing only two years ago, you could hardly drive through a residential neighborhood without spotting a remodel in progress. Friends and neighbors were putting in commercial-grade appliances, resort-quality bathroom tile, and built-ins made of exotic woods.

Most of those excessive remodels were financed with home equity loans and cash-out refinances. At the time, those home equity based debt instruments were easy to get, and relatively affordable.

The party's over

In recent months, the money supply has dried up as the mortgage industry fights through a period of transition. Homeowners are no longer experiencing equity gains, while mortgage lenders are being far more careful about the way they lend money. Remodeling contractors are feeling the pain.

A recent report produced by the Joint Center for Housing Studies at Harvard University predicts that in 2007, remodeling projects will dip more than 2 percent from 2006 levels. The report also indicates that another decline is anticipated for 2008. At the same time, Freddie Mac is reporting an expected drop in the amount of equity converted to cash by homeowners, from $315 billion in 2006 to $261 billion in 2007. In 2008, that number is predicted to drop even further, by a whopping 50 percent from the 2007 level.

Cutting back to the basics

Many homeowners are still spending money on home improvements, but they're doing it differently than they had in the past. Budgets are a fraction of what they were two years ago, and most of the discretionary spending has been cut out. Expensive materials, convenience features and added space are luxuries that most homeowners can no longer afford. Instead, home improvement funds are going towards maintenance and modernization projects-things like roofing and window replacement. Experts say that this type of controlled budgeting for home remodels is actually more in line with historic trends.

For the foreseeable future, homeowners are wise to continue budgeting their remodels conservatively. Since home values are sluggish, big investments are unlikely to result in corresponding increases in property values. In some cases, an expensive remodel may actually make a home more difficult to sell. For the same reason, homeowners should also be careful in how they use their equity. Equity builds slowly when housing values are down; tapping it out entirely may leave the homeowner without options if an emergency arises.

Gone are the days when home equity and fancy home remodels went together like milk and cookies. Housing contractors, as well as homeowners and mortgage lenders, are being forced to adjust quickly to a new set of economic circumstances.