Buying a New House Is Too Expensive. Homeowners Are Staying Put and Renovating Instead
For Danny Johnson and his family, it's important to live in an area and a home they love.
Johnson, owner of a cash house-buying business in Texas, owns a 100-plus-year-old historic home near downtown San Antonio with tiny closets. He, his partner and two kids have had to get creative with their storage, placing clothes in plastic bags and shoving them under the beds.
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Having more space would definitely be an upgrade, but there aren't many homes for sale in the neighborhood, and Johnson knows firsthand how difficult it can be to find a property that has everything they're looking for. So rather than investing the time and money it would take to buy another property, move and sell their house, the Johnsons are renovating. They're adding a master suite with a walk-in closet and an ensuite bathroom.
"If we find another house we like in an area we like, we'll likely have a lot of expenses buying the house and then making changes," he says. "Remodeling our current house allows us to put all of that money into the changes."
The Johnsons aren't alone in their decision to stay and upgrade rather than buy. Faced with a housing market that is unaffordable and short on inventory, many Americans are opting to give up on buying a new house and instead update the one they already have.
In a survey released last week by Citizens Bank, 44% of homeowners said that renovating their existing home was a more realistic option than purchasing a new one. A whopping 71% are actually planning to undertake a home improvement project within the next two years.
Fabien Thierry, head of home equity lending at Citizens Bank, says that homeowners deciding between moving and renovating are not only grappling with the total costs of the purchase — down payment, closing costs and monthly payments — but also the emotional weight and stress of moving. Just 13% of survey respondents said they think homebuying is "achievable" right now.
"Choosing home improvements over relocation comes down to affordability, unlocking the value in [the] home and the desire to upgrade," Thierry says.
The shift toward home renovations is understandable given today's difficult market conditions. Mortgage rates, aside from a brief dip below 6% earlier this year, have remained firmly in the mid-6% range — about double the average interest rate seen during the pandemic years. High prices don't help, either. These elevated interest rates mean financing costs a lot more than it did just a few years ago, driving up monthly mortgage payments.
The median home price in March, the most recent month for which data are available, was $408,800. Prices are 50% higher on average today than they were during the pandemic, and supply remains tight in many places, leaving the market too expensive for many move-up buyers.
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That's true even in high-end markets.
Matt Brown, a luxury real estate advisor with William Raveis Real Estate in Naples, Florida, regularly counsels clients on how to decide whether to renovate or buy. In an area where for-sale properties are few and far between and come with a hefty price tag, Brown says he is seeing a growing number of homeowners opt to stay and upgrade rather than buy.
One example is a Port Royal couple that bought a home in 2019 with a 3.2% interest rate on their mortgage. They came to him for help deciding between a $2.8 million renovation or a $12 million purchase. Brown did the math and found that buying a new home would involve a larger loan — at about 7%.
"Even with their substantial down payment capability, the monthly payment difference was staggering," Brown says.
Exacerbating matters, as the wife explained to Brown, buying didn't mean they would get a better house. They would simply get someone else's vision at a much higher interest rate. Spending a few million to renovate their home, on the other hand, allowed the couple to create their own vision and keep the place they love.
Although the financial advantages of home remodeling versus buying are a primary factor for many homeowners, it's not the only one. Location is also an important factor. And sometimes, the decision to remodel just feels right.
For Erik Leland, a realtor in Lake Oswego, Oregon, the decision to renovate rather than buy a new home was both financial and emotional. He purchased a dated home in 2018 with the idea that he would let it appreciate for several years, then sell and trade up. What he didn't count on, he says, was falling in love with the community.
As a result, he's planning to stay in the home and make upgrades that will give it a fresh new look and add value to the property should he decide to sell in the future. Leland is planning a full exterior remodel, including installing Hardie board siding, black framed windows, a faux stone veneer and a new garage door.
For him, the choice between staying and leaving was easy.
"When you have equity, a rate worth keeping and a home in a location you love, remodeling beats buying," Leland adds.