Should You Renovate or Move?
That is the big question!
The last 18 months changed what many buyers are looking for in a home. Recently, the American Institute of Architects released their AIA Home Design Trends Survey results for Q3 2021. The survey reveals the following:
- 70% of respondents want more outdoor living space
- 69% of respondents want a home office (48% wanted multiple offices)
- 46% of respondents want a multi-function room/flexible space
- 42% of respondents want an au pair/in-law suite
- 39% of respondents want an exercise room/yoga space
Consider Your Options
If you’re a homeowner who wants to add any of the above, you have two options: renovate your current home or buy one that has the spaces you desire. Your decision obviously depends on factors like:
- Your desire to relocate
- The difference in the cost of a renovation vs. purchase
- Finding an existing home or designing a new home that has exactly what you want (vs trying to restructure the layout of your current house)
In either case, you’ll need access to capital for the renovation or the down payment your next home would require. The great news is that the money you need probably already exists in your current home in the form of equity.
Home Equity Is Skyrocketing
The record-setting increases in home prices over the last two years dramatically improved homeowners’ equity. The graph below uses data from CoreLogic to show the average home equity gain in the first quarter of the last nine years:
As a homeowner, the money you need to purchase the perfect home or renovate your current house may be right at your fingertips. However, waiting to make your decision may increase the cost of tapping that equity.
If you decide to renovate, you’ll need to refinance (or take out an equity loan) to access the equity. If you decide to move instead and use your equity as a down payment, you’ll still need to mortgage the remaining difference between the down payment and the cost of your next home.
Mortgage Rates Update
Mortgage rates are forecast to increase over the next year. Waiting to leverage your equity will probably mean you’ll pay more to do so. According to the latest data from the Federal Housing Finance Agency (FHFA), almost 57% of current mortgage holders have a mortgage rate of 4% or below.
If you’re one of those homeowners, you can keep your mortgage rate under 4% by doing it now. If you’re one of the 43% of homeowners with a mortgage rate over 4%, you may be able to do a cash-out refinance or buy a more expensive home without significantly increasing your monthly payment.
Determine the Amount of Equity in Your Home
If you’re ready to either redesign your current house or find an existing or newly constructed home that has everything you want, the first thing you need to do is determine how much equity you have in your current home. To do that, you’ll need two things:
- The current mortgage balance on your home
- The current value of your home
You can probably find the mortgage balance on your monthly mortgage statement. To find the current market value of your house, you can pay for an appraisal, or you can contact a local real estate professional who will be able to present to you, at no charge, a professional Comparative Market Analysis report.
If the past 18 months have refocused your thoughts on what you want from your house, now may be the time to either renovate or make a move to the perfect home.