Source: Next Advisor —
Homeowners in the U.S. all seem to have the same thing on their mind: Renovations.
A recent survey commissioned by Discover Home Loans found that 79% of homeowners would rather renovate their current home than move to a different one. Among Gen Z and Millennial homeowners, 58% were currently working on home improvements or planning to start in the next three months.
There’s likely one big reason behind that: Rising mortgage interest rates. The average 30-year mortgage rate has now topped 7% for the first time in 20 years. Homeowners who sell in this environment would likely be giving up a lower interest rate when they move to a new home, so many are deciding to stay put and renovate instead—while leveraging considerable increases in equity to do so.
If you’re one of those homeowners, here’s what experts say you should consider before diving into a renovation project.
The Housing Market Is Back to Reality
Laya Gavin, a real estate broker and owner of EXIT Realty Sun City in Phoenix, says the days of frenzied buyers and sight-unseen purchases are over. While home values have held steady, and are still historically high in some places, sellers no longer have quite the advantage they used to.
“Now, it’s back to, ‘What’s the property really worth?’” Gavin says. “It is back to fundamentals about real estate values.”
Corwyn Melette, a broker/owner at EXIT Realty in North Charleston, South Carolina, says he wouldn’t term it a “slow-down,” per se, but that buyers are being a lot more cautious.
“The frenzy, the passion, and the rate at which people a few months ago purchased homes has changed,” he says.
That shift in the market is motivated by rising mortgage rates, which went from historic lows of 2-3% earlier in the pandemic, to more than 7% now—and are still rising. It’s pushed many potential buyers out of the market, leaving only people who really need to move or relocate.
“We’re certainly seeing a lot of data in terms of the purchase market slowing down pretty considerably,” says Rob Cook, a vice president at Discover Financial Services.
Homeowners Are Less Willing to Sell
On the other side of the coin, current homeowners are a lot less willing to sell than they were a year ago.
Higher mortgage rates are motivating some would-be sellers to reconsider. “That is definitely one thing that most people can’t miss now,” Melette says.
Melette is in that boat himself: He was planning to sell his home and downsize, but the rising rates mean his mortgage payment on a smaller house would be the same—if not more—than it is on his current home. “It definitely gives me pause as I look at that,” Melette says.
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