Home improvement remains a hot trend as people update their spaces to be more functional for the long-term.
Facing lean housing inventory, more would-be move-up home buyers may be feeling stuck in place. As they wait out the market, many continue to tackle remodeling projects on their current home. In fact, remodeling activity surged to a record high last year, according to the 2023 U.S. Houzz & Home Study, a survey that reflects responses from about 46,000 homeowners. The trend is likely to continue, as more than half of homeowners surveyed say they intend to renovate this year, too, consistent with 2022 levels.
“Faced with shortages of housing stock and high interest rates, we’re seeing homeowners update their current home to make the space more functional for the long term,” says Liza Hausman, vice president of industry marketing at Houzz, a home remodeling resource. “We’re also seeing an uptick in additions, with the vast majority of homeowners hiring professionals to achieve their goals.”
Many renovating homeowners may not have intentions of reselling immediately, but they’re eyeing how much their home could be worth as the housing market pendulum swings. Sixty-two percent of owners say their main motivation for tackling a renovation is to increase their home’s value, according to a separate survey from Cinch Home Services, a home warranty company.
Homeowners expressed concerns about selling their home in its current state, expressing fears that their home was in need of too many repairs (65%); has an outdated interior (60%); lacks trendy fixtures (38%); or lacks curb appeal (33%), according to the Cinch Home Services survey.
To combat home dissatisfaction, Houzz uncovered some recent home improvement trends that emerged from the 2022 boom.
1. Expanded living spaces. The number of renovating homeowners who are adding square footage is on the rise. The rooms most popular for expansions are kitchens, bathrooms and living rooms, the Houzz survey shows.
2. Remodeling budgets are rising. The median expense for home renovations in 2022 was $22,000—up 22% from 2021. Ten percent of owners were willing to spend six figures: $140,000 or more. Expenditures are likely rising because materials and products are getting pricier. Kitchen and bathroom renovations were the most expensive projects homeowners took on; in 2022, the median spend on a kitchen remodel reached $20,000, and $13,500 for primary bathrooms, up 33% and 50% year over year, respectively, according to Houzz.
3. Aging homes are getting upgraded. The median age of a home in the U.S. continues to rise as homeowners try to keep their properties current. Nearly 30% of homeowners upgraded plumbing, followed by electrical and home automation, the Houzz survey shows. Among home system updates, cooling and heating systems were the two largest expenditures at $5,500 and $5,000, respectively. Check out the most popular home updates based on a home’s age.
4. Contractors remain in demand. The long wait for contractors may linger in some markets because of overheated demand. Homeowners hired specialty service providers and construction professionals, such as general contractors and bathroom or kitchen remodelers, more often in 2022, the Houzz survey finds. Homeowners continue to cite “finding the right service providers” as their biggest challenge for home renovations, followed by finding the right projects and staying on budget.
5. Owners turn to loans for pricier projects. Eighty-two percent of homeowners paid for their projects using cash from their savings while 28% who used credit cards. But one trend to watch is that in 2022, the percentage of homeowners financing their renovation projects with secured home loans rose to 16% from 14% in 2021. Homeowners tackling pricier projects—from $50,000 to $200,000—are more likely to take out a loan than those with lower price tags, the study
Home buyers can expect more savings as borrowing costs continue to decline from their peak in late 2022.
Lower mortgage rates are giving buyers a boost at the start of the spring homebuying season. The 30-year fixed-rate mortgage dropped to 6.28% this week, the fourth straight week of declines, Freddie Mac reports. While rates are still higher than they were a year earlier, they’ve gradually scaled back from a 7% peak at the end of 2022.
“Compared to the recent 7% peak, the latest rate saves $140 per month for a home buyer on a $300,000 loan,” says Lawrence Yun, chief economist for the National Association of REALTORS®. “Though week-to-week rate changes can move up and down, the longer-term prospect on rates is for further improvement, with a clear possibility of rates going under 6% by the year’s end.”
Market dynamics are setting the stage for Yun’s prediction. Robust apartment construction in recent years has led to rising vacancies, which likely will temper rent growth and inflation, Yun says. “The Federal Reserve can, therefore, stop tightening,” which could ease the pressure on mortgage rates, he adds. “With lower rates, more home buyers will steadily appear. That is why it is critical to ensure more housing supply to help meet the recovering demand.”
Housing inventory remains at historic lows. As such, even in a slower housing market compared to 2022 levels, multiple offers and bidding wars are still present in many places as buyers scramble for limited choices.
Freddie Mac reports the following national averages for mortgage rates in the week ending April 6:
- 30-year fixed-rate mortgages: averaged 6.28%, falling from last week’s 6.32% average. Last year at this time, 30-year rates averaged 4.72%.
- 15-year fixed-rate mortgages: averaged 5.64%, rising from last week’s 5.56%. A year ago, 15-year rates averaged 3.91%.
Demand for outdoor features has boomed since the start of the pandemic. These projects stand to earn the most at resale, according to a new survey.
Many homeowners have turned their attention to enhancing their outdoor space since the pandemic began—and that may pay off at resale, according to a new survey from the National Association of REALTORS® and the National Association of Landscape Professionals. Ninety-two percent of REALTORS® say they recommend that sellers improve their curb appeal prior to listing, finds the 2023 Remodeling Impact Report: Outdoor Features. REALTORS® most often recommend general landscaping maintenance, standard lawn care service and tree trimming.
“It’s no surprise that nearly all REALTORS® and most homeowners place a high value on the curb appeal of a well-maintained yard,” says NALP CEO Britt Wood. “Healthy outdoor living and green spaces help the environment, increase home values, make communities more desirable and improve people’s mental and physical health.”
The COVID-19 pandemic changed the way Americans use their homes for daily living, relaxation and entertainment, adds Jessica Lautz, NAR’s deputy chief economist and vice president of research. “Homeowners have embraced their outdoor spaces, transforming them into oases with pools, patios, plants and greenery,” Lautz says. “These outdoor features … can also attract buyers if the owner wants to sell.”
Prioritizing Outdoor Projects for Resale
Most homeowners indicate a desire for an in-ground pool or an outdoor fire feature, but the ROI on these items may not be as high as simple lawn care and landscape maintenance, the report finds. The survey defines “standard lawn care service” as six seasonal applications of fertilizer and/or weed control on a 5,000-square-foot lawn and “landscape maintenance” as mulch application, regular lawn mowing, pruning shrubs and planting about 60 perennials or annuals.
The features that make homeowners happiest, however, aren’t necessarily the ones that earn the most at resale. The least expensive projects, such as standard lawn care service, have the highest cost recovery but one of the lowest “joy” rankings from homeowners, according to the survey. Instead, the report found that the following outdoor projects received the highest satisfaction marks among homeowners:
- In-ground pool
- Landscape lighting
- New patio
- New wood deck
- Fire feature
On the other hand, the items that ranked the lowest on homeowners’ “joy” scale were:
- Outdoor kitchen
- Tree care
- Standard lawn care service
- Installing a yard irrigation system
The majority of landscape professionals surveyed say the size and scope of outdoor home improvement projects have increased since the pandemic began. REALTORS® surveyed say the landscape projects they’ve seen most often since the pandemic began are the addition of an in-ground pool, landscape maintenance and a new patio.
The collapse of Silicon Valley Bank and others may drive mortgage rates lower, says NAR Chief Economist Lawrence Yun.
The demise of three banks last week has been sending shockwaves through an already fragile economy. Could it have an impact on real estate, too?
“The Silicon Valley Bank failure, along with a few other banks, means that the Federal Reserve cannot be so aggressive in raising its short-term interest rates,” says Lawrence Yun, chief economist of the National Association of REALTORS®. “Therefore, mortgage rates will decline.”
Mortgage rates had been steadily rising in recent weeks, with the 30-year fixed-rate loan averaging 6.73% last week, according to Freddie Mac. The Fed has been making a series of aggressive rate increases, which may indirectly influence mortgage rates, over the last few months. Home buyers have been up against affordability woes, as mortgage rates are nearly double what they were just a year ago.
But as of Monday, mortgage rates had fallen about 50 basis points lower than last week. Yun says that when there is a panic in the financial market, investors often shift money toward safer assets, which tends to be U.S. Treasury notes and bonds. Mortgage rates lately have tended to follow the movement of Treasury yields, which are falling.
“So, a panic in a sense leads to an automatic stimulus to the economy from lower interest rates,” Yun says in public comments on LinkedIn. “The housing sector nearly always responds to falling mortgage rates, especially when there are job additions to the economy.” And if rates do head lower, more home buyers undoubtedly would still enter the housing market in response, he adds.
Bank Failures Spark Panic
Last Friday, the shutdown of Silicon Valley Bank became the second largest bank failure in U.S. history and the largest since the 2008 financial crisis. The bank was known as a large supporter of tech startups. About 15% of the loans in Silicon Valley Bank’s portfolio were residential and commercial mortgages, The Real Deal reported. Signature Bank and Silvergate Capital, both big lenders in the cryptocurrency space, also shuttered their doors.
To help avoid mass panic, the Federal Reserve, Federal Deposit Insurance Corp. and Treasury Department created an emergency program to backstop all deposits using the Fed’s emergency lending authority. That granted depositors full access to their funds as of Monday, and the agencies vowed to make all depositors whole. Usually, banks only insure up to $250,000 per account ownership category through the FDIC, an agency that was created in 1933 after thousands of bank failures. In this case, the federal government’s move to backstop uninsured money has been viewed as an unusual step.
President Joe Biden has been offering assurance to Americans that banks are safe. He vowed on Monday to “strengthen oversight and regulations of larger banks so that we are not in this position again.”
Meanwhile, the bank failures may be a sign of trouble ahead for the tech industry. “Some businesses reliant on funding from Silicon Valley Bank [and others] may lack capital to continue its business or have to cut back,” Yun says. There could be some job losses ahead as a result, especially among some California tech companies, he adds. Local housing markets may be hampered by those job losses. But “broadly across the country,” Yun says, “more home buyers will enter the market [because of] lower mortgage rates.”
Contrasts have been popular in kitchen design in recent years, whether it’s faucets and fixtures or furniture sets. So, it’s not surprising that more homeowners are now mixing and matching their countertops in kitchen renovations, too.
In general, this look is achieved with the main countertops one color and the kitchen island countertop another (e.g. veining granite or quartz for the main and butcher block for the kitchen island).
When mixing and matching countertops, watch the patterns to avoid clashing styles. Two countertops with busy patterns can be overwhelming and distracting. Instead, renovators often combine a solid countertop with a patterned one to maintain visual balance.
Marble and granite tend to have a lot of pattern and veining, so they’re often paired with a solid quartz or a butcher block. Also, two countertops could be made of the same material but in contrasting colors, like white and black.
Could slowly climbing borrowing costs hamper the upcoming spring homebuying season?
Strong economic data and stubbornly high inflation pushed mortgage rates up for the fourth consecutive week, giving buyers whiplash after weeks of declines prior. The 30-year fixed-rate loan averaged 6.65% this week, according to Freddie Mac. “Higher mortgage rates have a direct impact on borrowing costs, hurting affordability,” says Nadia Evangelou, senior economist and director of real estate research at the National Association of REALTORS®. “At today’s rate, buyers need to put more than 20% down if they don’t want to be cost-burdened.”
Mortgage rates are about double what they were a year ago. Still, the latest housing data indicates market resilience and suggests activity will pick up in the coming months, Evangelou says. There already are signs of a possible turnaround: Pending home sales rose significantly in January, the second consecutive month of gains, NAR reported earlier this week.
However, home buyers are having to digest mortgage rates that are now boomeranging and inching back up toward 7%, adds Sam Khater, Freddie Mac’s chief economist. “Lower mortgage rates back in January brought buyers back into the market,” Khater says. “Now that rates are moving up, affordability is hindered and making it difficult for potential buyers to act, particularly for repeat buyers with existing mortgages at less than half of current rates.”
Rate relief could be on the horizon. If inflation eases faster than expected, mortgage rates could decrease to the low 6% range over the upcoming weeks, Evangelou says.
Freddie Mac reports the following national averages with mortgage rates for the week ending March 2:
- 30-year fixed-rate mortgages: averaged 6.65%, rising from last week’s 6.5%. A year ago, 30-year rates averaged 3.76%.
- 15-year fixed-rate mortgages: averaged 5.89%, up from last week’s 5.76%. A year ago, 15-year rates averaged 3.01%.
A jump in pending home sales in January indicates consumers are wading back into the market as rates settle in the 6% range.
For the second consecutive month, contract signings increased in January, registering their largest month-to-month gain since June 2020, the National Association of REALTORS® reported Monday. NAR’s Pending Home Sales Index jumped 8.1% from December to January, showing that buyers are rushing to take advantage of recently falling mortgage rates. And in more positive housing news, sales of newly built single-family homes rose 7.2% last month, the Commerce Department reported separately.
Mortgage rates crossed the 7% threshold in November, reaching more than double a year prior and giving buyers sticker shock. But since the beginning of the year, the 30-year fixed-rate mortgage has dialed back to the 6% range—clocking in at 6.5% last week—with less volatile fluctuations. NAR is forecasting that mortgage rates will average 6.1% this year and 5.4% in 2024. “Buyers responded to better affordability from falling mortgage rates in December and January,” says NAR Chief Economist Lawrence Yun.
An improving interest rate environment, along with recent job gains, is prompting a better outlook for housing. Home sales activity appears to be “bottoming out” in the first quarter, “but an annual gain in home sales will not occur until 2024,” Yun says. On an annual basis, contract signings are still down 24.1%, coming off the pandemic-fueled homebuying frenzy.
Meanwhile, home prices likely will remain steady in most parts of the country, with a minor change expected in the national median home price, Yun suggests. NAR is forecasting the median existing-home price to moderate after rapid gains over the previous two years. The national median home price is expected to be about $380,100 this year, falling 1.6% compared to the previous year. NAR expects home prices to gain traction again next year, jumping 3.1% to $391,800.
NAR also estimates a 1.3% increase in the median new-home price to $461,000 in 2023, followed by a 2.8% increase in 2024 to $474,000. NAR points to the higher costs of land and construction materials for the projected gains in new-home prices.
All four major regions of the U.S. posted monthly gains in contract signings in January, NAR reports. The West saw the largest increase, followed by the South. “An extra bump occurred in the West because of lower home prices, while gains in the South were due to stronger job growth,” Yun explains.
New-Home Sales Rebound
The pick-up in home sales also was felt in the new-home market last month. The National Association of Home Builders credited builders’ sales incentives—such as mortgage rate buydowns, paying points for buyers or even offering price reductions—for helping bring home buyers back to the market. Fifty-seven percent of builders have reported using incentives to bolster sales, according to NAHB surveys.
“Buyer incentives, along with stabilizing mortgage rates during the month of January, increased the pace of new home sales for the month,” says Alicia Huey, chair of the NAHB. “However, in a sign of current market weakness, sales are down 19.4% compared to a year ago.”
Affordability is still weighing on home buyers. The median price for a new home has fallen for three consecutive months and is down compared to a year ago, says Danushka Nanayakkara-Skillington, the NAHB’s assistant vice president for forecasting and analysis. For the third consecutive month, the median new-home price fell after peaking in October at $496,800. In January, the median price was $427,500, down 8.2% from December.
Home buyers are finding more available inventory in the new-home sector. Completed, ready-to-occupy inventory jumped 115% compared to a year ago, although that comes after particularly low levels in 2022. Ready-to-occupy inventory also only comprises 17% of the total stock of new homes, builders note.
As borrowing costs increase, rate dispersion among lenders is growing. Your clients could save up to $1,200 annually by shopping around, experts say.
Mortgage rates are inching up, with the 30-year fixed-rate loan increasing to a 6.5% average this week, Freddie Mac reports. Homeownership remains attainable for Americans who can afford a 20% down payment and a monthly mortgage payment of $1,880 on a median-priced home, says Nadia Evangelou, senior economist and director of real estate research at the National Association of REALTORS®.
“The economy continues to show strength, and interest rates are repricing to account for the stronger than expected growth, tight labor market and the threat of sticky inflation,” says Sam Khater, Freddie Mac’s chief economist. “Our research shows that rate dispersion increases as mortgage rates trend up. This means home buyers can potentially save $600 to $1,200 annually by taking the time to shop among lenders to find a better rate.”
Freddie Mac reported the following national averages in mortgage rates for the week ending Feb. 23:
- 30-year fixed-rate mortgages: averaged 6.50%, rising from last week’s 6.32% average. Last year at this time, 30-year rates averaged 3.89%.
- 15-year fixed-rate mortgages: averaged 5.76%, increasing from last week’s 5.51% average. A year ago, 15-year rates averaged 3.14%.
Buyers Are Trying to ‘Time’ the Market
Real estate professionals have clung to a certain phrase when reacting to higher mortgage rates: “Marry the house, date the rate.” Potential home buyers shouldn’t think twice about purchasing a property due to higher mortgage rates, says Brandon Snow, executive director at Ally Home.
“There is no cookie-cutter solution to the perfect time to buy a house, and consumers who try to time the market often lose out,” Snow says. “If you can comfortably afford the down payment, mortgage and additional payments, don’t let today’s rates hold you back. There will be a better scenario down the road, where you can refinance and secure a lower rate. We also expect to see a more normalized market this year, with fewer bidding wars amid today’s high-rate environment—and that could be good news for potential home buyers staying in the market.”
Further, mortgage rates are projected to stabilize below 6% in the second half of the year, Evangelou adds. That could prompt more Americans to become homeowners. But despite higher mortgage rates, there were about 1.6 million more homeowners nationwide in 2022 than the previous year, Evangelou adds, citing the latest data. “Even though many buyers were priced out due to historic low affordability, more Americans were able to become homeowners,” she says. She says she expects that as rates fall over the coming months, the homeownership rate could see another boost this year.
Rates in the 6% range are helping to bring buyers back to the market in time for the spring selling season.
Mortgage rates ticked up slightly this week, but they continue to remain well below their November 2022 peak, which eclipsed 7%. The 30-year fixed-rate mortgage averaged 6.12% this week, according to Freddie Mac. Lower rates in the 6% range since the beginning of the year are helping to bring costs down for potential buyers. “Interested home buyers are easing their way back to the market just in time for the spring homebuying season,” says Sam Khater, Freddie Mac’s chief economist.
Many renters are now paying about the same amount in rent as they would for a monthly mortgage if they owned a $300,000 home, says Nadia Evangelou, senior economist and director of real estate research for the National Association of REALTORS®. Nearly 85% of counties in the U.S. have a median price lower than $300,000, according to NAR data.
Aspiring home buyers may also see further easing in mortgage rates over the next few weeks. “With inflation easing rates, rates will likely resume their downward trek soon,” Evangelou says. Home price growth is slowing down in many markets, too.
Freddie Mac reports the following national averages with mortgage rates for the week ending Feb. 9:
- 30-year fixed-rate mortgages: averaged 6.12%, increasing from last week’s 6.09% average. A year ago, 30-year rates averaged 3.69%.
- 15-year fixed-rate mortgages: averaged 5.25%, rising from last week’s 5.14% average. A year ago at this time, 15-year rates averaged 2.93%.
A slowdown is now underway, says NAR Chief Economist Lawrence Yun. But don’t expect to see dramatic price drops.
After three years of runaway home prices, buyers may soon find relief. In some markets, they may have already found it.
The National Association of REALTORS®’ latest quarterly housing report shows that home price growth is cooling—though that doesn’t mean prices are falling. The national median price for a single-family existing home rose 4% in the fourth quarter of 2022, reaching $378,700. That’s a much slower pace than the 8.6% increase in the previous quarter. Further, only 18% of metro markets posted double-digit price gains in the fourth quarter of 2022, compared to 46% in the previous quarter, NAR data shows.
“A slowdown in home prices is underway and welcomed, particularly as the typical home price has risen 42% in the past three years,” says NAR Chief Economist Lawrence Yun. Still, “even with a projected reduction in home sales this year, prices are expected to remain stable in the vast majority of markets due to extremely limited supply. Moreover, there are signs that buyers are returning as mortgage rates decline, even with inventory levels near historic lows.”
Still, about one in 10 markets saw home price declines in the fourth quarter of 2022. What’s more, “a few markets may see double-digit price drops, especially some of the more expensive parts of the country, which have also seen weaker employment and higher instances of residents moving to other areas,” Yun says.
Home buyers may be holding out for bigger price drops. Rising home prices have far surpassed median wage increases, and higher inflation and mortgage rates also are hampering home affordability. The typical monthly mortgage payment on an existing single-family home with a 20% down payment reached $1,969 in the fourth quarter of 2022—a 58% increase compared to a year earlier, according to NAR. That said, mortgage rates have been inching down since the beginning of the year.
The South had the largest share of single-family existing-home sales of any U.S. region and posted year-over-year price appreciation of about 5%, according to NAR. Prices climbed 5.3% in the Northeast, 4% in the Midwest and 2.6% in the West during the fourth quarter of 2022. The following 10 metro areas saw the largest year-over-year price increases in the fourth quarter of 2022, with seven of those markets in Florida or the Carolinas:
- Farmington, N.M.: 20.3%
- North Port-Sarasota-Bradenton, Fla.: 19.5%
- Naples-Immokalee-Marco Island, Fla.: 17.2%
- Greensboro-High Point, N.C.: 17%
- Myrtle Beach-Conway-North Myrtle Beach, S.C.-N.C.: 16.2%
- Oshkosh-Neenah, Wis.: 16%
- Winston-Salem, N.C.: 15.7%
- El Paso, Texas: 15.2%
- Punta Gorda, Fla.: 15.2%
- Deltona-Daytona Beach-Ormond Beach, Fla.: 14.5%
Overall, the 10 priciest markets in the fourth quarter of 2022 (which were mostly in California), according to NAR’s report, are:
- San Jose-Sunnyvale-Santa Clara, Calif.: $1.58 million; down 5.8%
- San Francisco-Oakland-Hayward, Calif.: $1.23 million; down 6.1%
- Anaheim-Santa Ana-Irvine, Calif.: $1.13 million; down 1.6%
- Urban Honolulu, Hawaii: $1.1 million; up 3.4%
- San Diego-Carlsbad, Calif.: $857,000; up 1.4%
- Los Angeles-Long Beach-Glendale, Calif.: $829,100; down 1.3%
- Naples-Immokalee-Marco Island, Fla.: $802,500; up 17.2%
- Boulder, Colo.: $759,500; down 2%
- Seattle-Tacoma-Bellevue, Wash.: $708,900; up 1.3%
- Barnstable, Mass.: $668,100; up 4%