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Homeowners would rather renovate than move

October 22, 2018

One of the biggest problems in the housing market over the past few years is that while there are plenty of people willing to buy homes, few are willing to sell. The inventory issue has been the biggest constraint in housing activity in just about every good-sized market in the country, as older people would rather stay in their homes than sell, even as previous generations move on from small and mid-sized properties around the same age.

There's plenty of evidence - both hard data and anecdotal - to suggest that's not going to change any time soon.

Indeed, a recent survey from Zillow found that 76 percent of homeowners would rather use a large sum of money to renovate an existing home to better fit their long-term needs rather than make a down payment on a new one. The company's Housing Aspirations Report specifically found that once again it was older people driving this trend: 91 percent of retirees and 89 percent of people over the age of 55 say they'd rather renovate than move.

"Nearly two-thirds of owners have no plans to sell."

With 83 percent of homeowners in a similar survey saying they love their houses right now and nearly two-thirds reporting that they have no plans to sell, it seems that there might not be much wiggle room for big inventory gains any time soon, Zillow said. In addition to the fact that current homeowners like their situations, the extant difficulties in the housing market don't seem to be lost on them either.

"Even in a seller's market, simultaneously buying and selling is an exercise in frustration," said Skylar Olsen, Zillow's director of economic research and outreach. "Add to that the emotional history between you and your home, and it's no wonder low inventory has been in a self-fulfilling cycle. Homeowners may hesitate to sell because of limited options for them as buyers, but by holding on to their homes, they are themselves contributing to low inventory."

How much renovation is actually happening?
Interestingly, the stated intent to renovate also seems to be something which many current homeowners are following through on these days, according to a separate survey from Houzz. Last year, nearly 3 in 5 homeowners renovated at least some part of their house, utilizing a median budget of about $15,000. Perhaps as part of this larger trend toward keeping older homes, more recent buyers are starting to get in on the remodeling action, indicating that many buyers are being forced by the low inventory to purchase homes initially, then invest money so the properties better meet their needs.

Almost one-third of all homeowners renovated their kitchens last year, and nearly as many did the same for guest bathrooms, the report said. Nearly a quarter also renovated master bathrooms. Here, too, new buyers were aggressive, with 40 percent of first-timers investing in a kitchen remodel, which suggests that as more new people buy homes, this trend will continue.

The reasons for all these remodels can vary, but there's a lot of commonality as well: 89 percent of respondents said they wanted to improve the design of their homes, and 84 percent cited better functionality, the survey found. Another 69 percent said they wanted to boost their property's resale value, and many owners said they thought the cost of the renovation paid for itself in terms of how much it increased a home's value.

"There was a 2.5% decline in inventory."

Inventory continues to slide
All of this should lead observers to the natural conclusion that, yet in the third quarter, the housing inventory dropped on an annual basis, according to the latest Inventory and Price Watch Report from Trulia. However, even with the 2.5 percent year-over-year decline in the number of homes for sale, there might be some good news: Listings in some of the nation's hottest markets are starting to rise once again, and in fact, the inventory drop was the smallest seen since 2015. This potentially highlights the fact that those regions have reached a point at which they've bubbled over and started to see more people enticed to sell.

Cheryl Young, senior economist at Trulia, noted that prices are still likely to rise for some time to come, but that there may be some relief for shoppers. That may be particularly true for people looking to buy lower- and mid-priced homes, for which the national inventories ticked up 0.4 percent and 0.9 percent, respectively. However, these properties are still incredibly difficult to find in many regions, as high-priced homes still make up half of all listings nationwide.

Affordability, therefore, continues to be a big issue, because even shoppers buying starter homes are paying large sums of money to do so, the report said. People buying the lowest-priced homes in the third quarter paid nearly 26 percent of their income for a mortgage, up from slightly more than 22 percent a year earlier.

The big picture
Some note, however, that it's a wonder more people aren't selling, simply because of the current just how owner-friendly today's housing conditions market is. The most recent market recap from shows that median prices - about $295,000 - were up 7 percent on an annual basis at the end of September, and the number of days properties spent on the market slipped to only 65 days, down from about 70. This came as the number of active listings in the final month of the third quarter held steady on an annual basis, and was up 0.4 percent from August despite the seasonal tendency to decline over that period.

Moreover, the inventory of newly listed homes was up 8 percent on an annual basis, marking the single largest increase seen since 2013, and the sixth straight month of such increases, the report said. Often, those new listings are at least somewhat cheaper than homes already on the market, even if those prices were still up on an annual basis.

With all these issues in mind, it's worth noting that home prices are expected to keep rising at a pace well above historical norms for some time to come. Consequently, the sooner people can get into the market, the more likely they will be to find and lock in a better deal than will likely be available even a few months from now.




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