There’s no place like home, especially when it might be a better idea to renovate it
The consequences of the recession still loom over many of us. Despite what we’ve always been told about the financial benefits of homeownership, nearly 10 million people lost their homes when the 2008 financial crisis hit the U.S.
In many parts of the country, who made it through the recession found that they now owed the mortgage holder of their home more than it was worth. According to MarketWatch, at the end of 2017, the number of homeowners who are what’s known as “underwater” on their mortgage was 1.36 million – still more than twice the number before the recession. It’s why many homeowners have decided to stay where they are. The state of the housing market has made them see renovation as a better solution to buying a different home.
The ripple effect
“Real estate isn’t the greatest investment,” Rockford, Illinois homeowner John Gedwill told the Chicago Tribune. Gedwill said he’d rather renovate his current home than shop for a new one. The Tribune reports that home buyers today have a different mindset than they did prior to the recession. It used to be common to buy a starter home and then use the equity to upgrade to a larger home when the house became outdated. Currently, the percentage of homeowners moving up to a new home is at a 25-year low.
It’s causing a profound change in the American housing market. The Boston Globe reports that a recent survey shows an upward trend in the desire for homeownership by Millennials. About 52 percent surveyed said they like to purchase a home in the next two years.
However, there’s a problem. People aren’t moving out of their starter homes. Those entering the market can’t find affordable homes to purchase. Starter homes have failed to appreciate the way they have in the past. The result is a generation who is stuck in their starter homes.
Plus, CNN reports that home prices continue to increase. That’s putting off potential buyers. Overall, low inventory and higher prices have slowed down the entire national housing market.
Stay and renovate
Whether it’s out of fear or frugality, homeowners are choosing to invest in renovating their current home rather than relocate to a new home. The Home Improvement Research Institute (HIRI) predicts that home improvement sales will grow an additional 5.5 percent in 2019 after a 6.2 percent expansion in 2018.
While it still means spending money, The Simple Dollar website points out that moving itself is costly. Interest rates are slowly rising, so you’ll likely pay more for a new home. Keep in mind that things like property taxes and homeowner’s insurance will add to the monthly payment. Plus, there’s the cost of selling your current home. What needs to be repaired or upgraded to make it sellable? Consider, too, the real estate commissions and other expenses involved.
Depending on the equity in your current home, it might make more sense to borrow against it to renovate instead of looking for extra space and upgrades in a new home. Renovating your current home also offers the advantage of staying where you are and not having to pull your children out of school.
It can be a tough decision, which is why finance writer and Zero Down Your Debt author Holly Johnson recommends asking yourself a few important questions:
- What are your housing goals over the next decade? If you think you’ll keep your job and you like where you live, it makes more sense to renovate and stay where you are.
- Do you have children who will move out? You’ll gain room when they do. It could be in your best interests to be patient and renovate after they’re gone.
- How are your finances? If you purchased a home just after the economic downturn, you might have one of the lowest mortgage interest rates you’ll ever find. Are you willing to give that up if you move to a new house?
We like it here
The grass isn’t always greener at the new subdivision. A recent survey by Zillow concluded that 76 percent of Americans would rather make upgrades to their current homes then make a down payment on a new place.
The top reason survey-takers gave was that they liked the current location of their home and didn’t want to go through the hassle of relocating. This reason was even stronger for older adults. Of those over the age of 55, 87 percent said they’d prefer to renovate their existing homes. This number jumped to 91 percent for those who are retired.
There’s much to be said for staying where you are. Learn how we can help you fall in love again with your home.