Home prices and interest rates are on the up swing and it doesn’t seem like that will stop anytime soon. People have talked about Covid, labor and material shortages, early retirement and other issues that have forced the cost of living to skyrocket over the last five years. However, there’s one main factor that often does not get discussed and yet it heavily influences our cost of living, especially when it comes to the housing market.
Low inventory is impacting how much our homes are worth. Buyers are not happy with the options that are currently available, especially the price of them, but the truth is that their biggest frustration is on the limitation of affordable options that are in liveable condition. The best priced homes in an area are now ones that need major renovations that could make it far too expensive a project for most potential homeowners to take on.
Current Home Inventory Challenges
Love inventory usually creates a challenge for buyers. However, the inventory issues within the housing market are different than from other areas. What is the difference between buying a condo at $250,000, a home at $400,000 or a home that needs major renovations for $250,000? Believe it or not, all three properties will cost you the same each month. Condo associations now charge so much for their HOA fees that the monthly cost combined with your mortgage will be the same as if you were to buy a $400,000 home.
If the property needs work, that may save you on your initial costs, but borrowing more money at these rates is tough, especially if you need major renovations on a property. The irony here is that even if you get a loan and the renovations done, your payments for that loan and your mortgage will be higher than if you bought the $400,000 initially. This is why buyers are struggling to make decisions on how to move forward, especially considering the low inventory.
Demand For Construction Services
There was concern as the beginning of the year that construction would be impacted by the higher interest rates and lower inventory. Borrowing money to build or even buy a home can slow things down and again, because construction services and costs are higher than ever before, people were expected to be more reluctant and doing renovations and major builds. That does not seem to be the case at all now that we are well into 2023.
One of the reasons people are still committing to the construction costs and getting their renovations done is because of the waiting time it takes to get someone to take on the project. Paying for the work is one thing. However, the industry is also experiencing labor and material shortages and that means if you can afford the renovations or new construction, you get started as soon as you have a contractor ready to go. Waiting is no longer an option because you could lose your team to another project within days.
Why Interest Rates Aren’t Making A Difference
A new roof on a house can cost anywhere from $20,000 to $50,000 depending on a variety of things. However, the cost of that roof will not delay someone getting theirs fixed or replaced. Why is that? Part of it is because people do not usually like to live in a home with a broken roof. Another big reason has to do with insurance costs. Keeping your insurance premiums low has become challenging and insurers are being very selective on the properties they take and what they charge.
By replacing outdated windows, adding a new roof and making renovations that are needed on the property, you may raise its value but you may also be eliminating any insurance issues you are having with the house. While interest rates are high, people cannot ignore the needs of their property, especially if it is going to cost them more money in insurance costs anyways.
What Your Realtor Recommends
As we review the current state of the market we understand the challenges that both homeowners and home buyers are facing, not only with inflated rates but the increased costs of everything. Everyone has different options based on their finances. However, if you are interested in selling your home this year or next and it needs work, you may want to get the work done yourself.
Think about someone wanting to buy your home and knowing that it needs $50,000 in repairs. They know that they cannot afford those costs without taking out another loan which will not be an option because of the inflated interest rates. That means buyers will skip your house and the only real offers you are going to get will probably be from investors who are willing to pay for the construction costs, but only if they get the property at a very low price.
This is why if you have the ability to, you should invest your own money and time into the needed renovations of the property. Yes, it’s a major commitment from you but it will raise the value of your home and also give you an opportunity to eliminate areas of the property that could cost you tens of thousands of dollars when you get inspections and appraisals done.
The better the quality of the property, the more money you will make off of it. Construction companies are doing quite well right now so it will take some time to get one in and make the changes to your property you need. If you can manage the costs and the waiting time, the right construction company could cost you a lot of money but make you even more back when you are ready to sell.
Consult with a realtor before you get started to determine the current value of your home, what work needs to be done and if it makes sense for you to take the time and money to fix up the property or if you should try to sell it as it is. Each market is different and depending on your neighborhood, local inventory and more, you could end up making a lot more back on your construction investment, especially if the work is done great.