Homeowners are underestimating the cost of expensive remodeling projects, often by thousands of dollars. For example, homeowners’ estimate for the price of a kitchen remodel is off by more than $9,500, a difference of 48%, according to a new study from Discover Personal Loans based on a survey of 969 consumers. The kitchen renovation, one of several common remodeling jobs that researchers evaluated, was the most underestimated home project.
“People often incorrectly estimate some of life’s costs,” the researchers note. “From kitchen remodels to health care expenses or the cost of starting a business, many have trouble accurately estimating the cost of these expenses and many others that may come up.”
Many homeowners struggle to estimate how much money they will need for home improvement projects, the survey finds. On average, homeowners underestimated the surveyed renovation projects by an average of about 46%, making it difficult for owners to accurately budget. Researchers point to this as a reason why they’re not saving enough. Only 37% of homeowners surveyed set aside a part of their monthly budget to save for repairs and home improvements.
Consumers also underestimate smaller projects like cabinet re-facing, as many thought the price was 74% less than the actual cost, the survey found.
“One common budgeting pitfall is forgetting to account for the cost of the labor,” the survey notes. “Labor can account for over one-third of your total cost.” Further, a labor shortage is driving up costs even as the price of materials is rising.
The Federal Reserve lowered its benchmark interest rate by another quarter of a percentage point on Wednesday to a range of 1.75% to 2%, citing concerns over a global economic slowdown. Mortgage rates aren’t directly tied to the Fed’s interest rate, but they do tend to be influenced by them.
Following its meeting, the Fed signaled that another rate cut is likely before the end of the year. It cited “uncertainties” about the economic outlook and vowed to “act as appropriate to sustain the expansion.”
“For consumers, mortgage rates may decline, or may not, since the global bond market influences the longer-term interest rates,” says Lawrence Yun, chief economist at the National Association of REALTORS®. “Rising government deficit and debt levels imply some upward pressure on bond yields. However, a softening economy and slack in aggregate demand points to a downward nudge to bond yields. Various competing forces are at work. One thing is clear: Mortgage rates currently are essentially at their lowest mark in modern history.”
Still, while mortgage rates remain low, the Fed’s actions Wednesday will likely have little impact, at least initially, in directly bringing rates down more, several economists said after the Fed’s announcement.
“I don’t expect that the Fed rate cut will have much of an effect on fixed rates, but it may help support lower rates on ARMs,” says Lee E. Ohanian, professor of economics and director of the Ettinger Family Program in Macroeconomic Research at UCLA. “The 10- and 30-year Treasury rates are still extremely low, even after moving up a bit from last week and those low rates will support relatively low fixed mortgage rates.”
The trend in mortgage rates right now is being driven primarily by the impact of trade policy and global economic pessimism on long-term treasuries, notes Ruben Gonzalez, chief economist at Keller Williams. “Recently, we have seen some stabilization of treasuries, and mortgage rates have risen slightly,” Gonzalez said in a statement. “However, without some genuine resolution to geopolitical tensions around trade, mortgage rates are likely to remain low for the remainder of the year.”
Some economists—as well as President Donald Trump–were expecting the Fed to take a bolder stance on Wednesday and cut rates much more to stave off a possible recession.
“It would have been better to get the economy going right away” with a greater cut at this week’s meeting of half a percentage point instead of just another quarter percentage point, says Yun. “The indication of another rate cut in a few months will simply hold back some consumer and business decisions until then,” Yun says.
Following its meeting, the Fed said that the U.S. economy is in “strong shape and unemployment remains low.” “If the economy does turn down, a more extensive series of rate cuts could be warranted,” Fed Chairman Jerome Powell said at a news conference following the Fed’s meeting.
A master bedroom is meant to be a peaceful place to relax and recharge. That’s why designers say a lot of attention needs to go into its look: to make sure it fulfills that purpose. Design experts also say an uninviting master retreat could negatively affect resale value, so there’s more at stake in the bedroom design than a restful sleep.
“One thing to keep in mind is that form follows function, meaning the visual appearance of your bedroom comes second to bedroom functionality—especially since roughly one-third of your life is spent in your bedroom,” Michael DiMartino, senior vice president of installations at Power Home Remodeling in Chester, Pa., told realtor.com®.
Design experts shared with realtor.com® some of the most common bedroom design mistakes they see, including:
Having too large an empty space. Spacious bedrooms are usually a plus, but you don’t need to go overboard. “Between a bed, nightstands, one or two dressers, and maybe an armchair, there’s only so much furniture that goes in a bedroom,” Nathan Outlaw, president of Onvico, a design and construction company in Thomasville, Ga., told realtor.com®. A room that is too large can feel empty and uninviting, he says.
Forgetting a TV. Most people want a television in the master bedroom, and it’s a good idea to at least stage one if selling. “We find about 70% of our clients want a TV in the bedroom,” says Thomas B. Wagner, a residential architect in Haddonfield, N.J. Jennifer Okhovat, a real state pro with Compass in Los Angeles, told realtor.com® that she fields a request for bedrooms with TVs often. “I’m selling a home right now with two guest bedrooms, and one of the biggest objections I am getting from buyers is that there is nowhere to put a TV,” she says.
Disregarding the closet size. “The design of closet space is quite important,” Amy Berglund with RE/MAX Professionals in Colorado told realtor.com®. “It’s a big turnoff to show a closet that is crammed with clothes and shoeboxes because the closet hasn’t been thoughtfully designed with proper shelving, baskets, etc.” Real estate and staging pros advise making sure there is enough hanging space for longer clothing pieces. Also, make sure the shelving isn’t so high that it isn’t accessible. In some cases, you may need to add a ladder to the design or show a stepstool.
Fewer new homes are being built with a fireplace, a sign the cold-weather amenity is falling out of favor with home buyers. A record low percentage of newly constructed single-family homes—41%—last year included a fireplace, according to an analysis of U.S. Census Bureau data from the National Association of Home Builders. The share of single-family homes with fireplaces has been declining since 2015, the NAHB reports.
“An obvious explanation for the declining trend is that builders are foregoing fireplaces in some of their homes so they can bring them in at prices their customers can afford,” the NAHB reports on its Eye on Housing blog. “Keeping new homes affordable has become a considerable challenge lately.”
Fireplaces are usually considered a desirable amenity but not a must-have, the NAHB notes. Fifty-five percent of buyers rate gas-burning fireplaces as desirable, while 48% say the same of wood-burning fireplaces as desirable, according to the survey. That places such features in the middle of the list of decorative features most sought-after in terms of desirability, according to the NAHB’s “What Home Buyers Really Want” survey. However, only 16% of buyers say either type of fireplace is essential in a home purchase.
Fireplaces are the most uncommon home feature in the lower price points of the market. For example, just 7% of new single-family homes started in 2018 that were priced under $150,000 had fireplaces. On the other hand, more than 60% of homes priced at $500,000 or above had a fireplace.
President Donald Trump has called on the U.S. Federal Reserve to drop interest rates to zero, or even negative, at its next meeting on Sept. 17. That has sparked several discussions this week on how that could impact the housing market.
For one, that could mean cheaper mortgages for home buyers, housing analysts say. While the Fed’s benchmark rate does not have a direct influence on mortgage rates, it does often influence them.
“If the federal rates go down to zero, mortgage rates could drop from 3.56% for a 30-year fixed-rate loan, as of Thursday, to, well, nothing,” realtor.com® reports. Is it feasible? Bank of America officials told USA Today: “We believe negative rates in the U.S. are a possibility.”
How would a zero mortgage rate work? “Most people think they’d get money back … but not really,” says George Ratiu, senior economist at realtor.com®. “A portion of your loan is forgiven each month so you end up paying a little less over the life of the loan.” Buyers and refinancers could expect fees to rise as a result. Lenders would still need to turn a profit.
Lower mortgage rates cause payments to go down and could lead to more qualified buyers, Don Frommeyer of CIBM Mortgage in Indianapolis told realtor.com®. “Their debt goes down, and they become eligible to buy a bigger home,” he says.
One country has already seen the impact from low- or negative-rate loans. Denmark’s third-largest bank, Jyske Bank, began offering its customers 10-year mortgages with a negative 0.5% interest rate. Clients are paying the bank less than they owe on the loan. Other banks in the country are following suit.
Low interest rates could be a boon for home shoppers, but for savers or retirees who live off their savings it could be a “tremendous blow,” Ratiu says. “They would end up having to pay money to keep their funds in the bank,” he told realtor.com®. “You’re not likely going to be incentivized to save.” That could also make it tougher for some people to save up for a down payment.
The 30-year fixed-rate mortgage reversed course this week, rising to an average of 3.56%. Despite the uptick, this is the first time that the 30-year fixed-rate mortgage has been under 3.6% for more than four consecutive weeks since the fourth quarter of 2016, Freddie Mac reports.
“Pipeline purchase demand continues to improve heading into the late fall with purchase mortgage applications up 9 percent from a year ago,” says Sam Khater, Freddie Mac’s chief economist. “The improved demand reflects the still healthy underlying consumer economic fundamentals, such as a low unemployment rate, solid wage growth, and low mortgage rates. While there has been a material weakness in manufacturing and consistent trade uncertainty, so far, the American consumer has proved to be resilient with solid home purchase demand.”
Freddie Mac reports the following national averages with mortgage rates for the week ending Sept. 12:
30-year fixed-rate mortgages: averaged 3.56%, with an average 0.5 point, rising from last week’s 3.49% average. A year ago, 30-year rates averaged 4.6%.
15-year fixed-rate mortgages: averaged 3.09%, with an average 0.5 point, rising from last week’s 3% average. A year ago, 15-year rates averaged 4.06%.
5-year hybrid adjustable-rate mortgages: averaged 3.36%, with an average 0.3 point, rising from last week’s 3.3% average. Last year at this time, 5-year ARMs averaged 3.93%.
Most Americans have no regrets about buying a home. In fact, it’s made them happier, a new survey shows.
Ninety-three percent of Americans say they are happier after buying a home, and 83% would never go back to renting, according to Bank of America’s latest Homebuyer Insights Report, based on a survey of nearly 2,000 consumers. Most owners say they have an emotional attachment to their home, and ownership also has improved their lifestyle and variety of hobbies.
“We know how much ownership means, and we see examples every day of how owning a home gives our clients the power to build personal wealth and make memories,” says D. Steve Boland, head of consumer lending at Bank of America. “They’ve told us very clearly that homeownership is invaluable, and that’s why we’re actively providing assistance with down payment and closing costs to help people buy homes and create a new lifestyle.”
Eighty-eight percent of survey respondents say that buying a home is the best decision they’ve ever made. Seventy-nine percent say that owning a home has changed them for the better. Three out of four homeowners surveyed say they pursued new hobbies after buying a home, including:
Landscaping/gardening: 47%
Cooking/baking/grilling: 45%
Interior design/remodeling: 33%
Further, two-thirds of respondents say their relationships with family and loved ones has changed for the better since purchasing a home. They credited homeownership as improving their relationships in the following ways:
Given families a sense of pride: 47%
Allowed homeowners to entertain more: 49%
Enabled homeowners to bring the entire family under one roof: 24%
Mortgage rates, which remain near three-year lows, stand to help not only home buyers but current homeowners who want to unlock potential savings through mortgage refinancing. In fact, homeowners who purchased property as recently as a year ago could reap significant financial benefits by refinancing today.
Eighty percent of mortgages originated in 2018 have an interest rate at least 0.75 percentage points higher than today’s 3.4% average. But those are hardly the only homeowners who may want to consider a refinance. Borrowers who took out a mortgage before 2004—when interest rates were much higher—also stand to decrease their rate by 1.75% or more by refinancing, according to data analytics firm Black Knight.
More than half of American homeowners with a mortgage have a rate that is at least 75 basis points higher than the current average, according to Black Knight. It’s the largest number of potential refinancers since 2000, when Black Knight began tracking the metric.
Homeowners also are finding more equity in their homes. Total home equity nationally surged to a record high last quarter of $6.3 trillion. The average homeowner has $14,000 in equity available via a cash-out refinance or other home equity product, according to Black Knight. The majority of homeowners—76%–could access their “tappable” equity with “little change to their existing 30-year rate or perhaps even a slight improvement,” according to Black Knight.
Tappable equity is highest in the nation’s priciest coastal cities, such as Los Angeles and San Francisco. But many homeowners in Texas and Florida are also seeing significant amounts of equity.
Your clients don’t need a perfect credit score to buy a home. But the higher the score, the more likely they will benefit from lower interest rates.
Only about 1.4% of the population has a perfect 850 on their FICO credit score. “Achieving a perfect credit score is largely out of your hands,” Riley Adams, a licensed certified public accountant and senior financial analyst for Google, told Apartment Therapy. It can take years to build up a perfect credit score of paying bills on time and paying off debts.
Apartment Therapy recently asked financial experts how consumers can improve their score and inch closer to an 850. Here are a few tips:
Always pay your bills on time. On-time payments comprise 35% of your FICO score. A single 30-day past due report can quickly bring down your score.
Maintain low credit card balances. Keep your credit use below 30%. Otherwise, lenders may start to think you’re overextended. To get closer to that perfect 850 credit score, however, you’ll need to keep your average credit utilization rate to just 5.8%, according to Experian. Sara Rathner, credit cards expert at NerdWallet, told Apartment Therapy that it’s a good habit to pay your credit card balance more than once a month. “That can lower the total balance remaining on your card when your billing cycle ends, so that lower number is what credit bureaus see,” she notes.
Limit your inquiries. While asking for a free credit report to review every year isn’t going to hurt you, hard inquires to a lender in checking your credit for a loan or credit card could. Keri Danielski, consumer finance expert at Mint and Turbo, told Apartment Therapy that these queries can actually appear on a credit report and affect a credit score. Hard inquiries from applying for a new loan or credit account can stay on your credit report for up to two years. Nathan Grant, an analyst with Credit Card Insider, told Apartment Therapy that consumers will likely end up with a higher credit score when they haven’t applied for new credit within the past year.
Home shoppers may be able to breathe a sigh of relief. They’re facing fewer bidding wars for the homes they want to buy.
About 10% of offers written by Redfin real estate agents on behalf of their customers faced a bidding war in August, down from higher than 42% a year earlier, according to the brokerage’s index that measures competitive offers nationwide. August’s percentage is also the lowest bidding-war rate on record since at least 2011.
The national rate of bidding wars peaked at 59% in March 2018, but has since been dropping.
“Despite remaining near three-year lows, mortgage rates have failed to bring enough buyers to the market to rev up competition for homes this summer,” says Redfin Chief Economist Daryl Fairweather. “Recession fears have been enough to spook some would-be buyers from making the big financial commitment of a home purchase. But assuming a recession doesn’t arrive this fall or winter, consumers will likely adjust to the new ‘normal’ of continued volatility in the stock and global markets, and the people who need and want to make a move will take advantage of low mortgage rates. As a result, I still expect home-buying competition to pick back up in the new year.”
In August, San Francisco was the most competitive market in Redfin’s analysis. Thirty-one percent of offers written by Redfin agents on behalf of their clients faced a bidding war last month. That is down from 73.5% a year earlier.
Other markets seeing the highest percentage of bidding wars in August were in San Diego (18.4%); Las Vegas (17.1%); Boston (15%); and Los Angeles (14.4%).
Meanwhile, the least competitive markets were Atlanta (2.4% of customer offers faced a bidding war); Miami (3.1%); Raleigh, N.C. (4.2%); Philadelphia (4.3%); and Chicago (5%).
