If you own a New England home that is showing its limitations or just needs some updating, you have two choices: you can renovate or move to a new home. When faced with this choice, many homeowners look to real estate professionals to provide advice on staying put or moving on.
What is the housing market in greater Boston doing these days? What should homebuyers know before making a purchase decision? Is a renovation worth it in the neighborhood you love and have built a life in?
I spoke with Leanne Mitchell from Berkshire Hathaway Homeservices Page Realty for her perspective on what buyers want in a new home and how homeowners can navigate the real estate market when buying or selling a home.
Leanne: The good news for buyers is that the market is beginning to level out. Price increases have slowed from the mind-bending 20%+ of last year in the Boston area to around 8% this year to an expected 4% in 2023. That is good news especially for first time home buyers. Most in that group are looking for a home starting at around $500,000. The median home-sale in Massachusetts is now around $520,000. So it’s already a challenge, but double digit increases year over year were really making it tricky to get a first home.
Leanne: Yes, It is still a strong market for sellers, but it is coming into a bit more balance. Here’s an example: In a market more or less balanced between buyer and seller, the inspection period of a real estate contract is very important. This is when a buyer can bring in an expert to give an assessment of the condition of the house and its various systems. This is an opportunity to request repairs or a credit against the sale price of the home or, simply, develop a stronger understanding of the inner workings of the home. Yet sellers in the past few years have been rejecting the idea of inspections altogether. In the top competitive Boston-area markets, sellers could reject any inspections and in some cases reject offers containing any contingencies. This made it especially difficult for first time home buyers to compete. Now we have seen offers accepted with inspections and, in some cases, sellers willing to negotiate on inspection issues.
Another sign of balancing out, yet still plenty of leverage in the direction of sellers: Home listings last year would often attract 20 to 40 offers and now they are attracting more like 2 to 5 offers. In the past if you were on the market for 10 days it was a short amount of time. Now if you are on the market for 10 days that is a long time. When a home takes 10 or more days to sell, homeowners are more willing to negotiate.
Leanne: Buyers generally remodel one year after moving into a home and then seven years after the first remodel because they want to stay long term. The market for remodeling is likely to be strong, as people this past year have needed to battle it out and come out on top competing with multiple offers. You likely had to make compromises on your wish list just to get into a house that met most of your criteria.
I recommend to my buyers that they wait a year before remodeling to know how the house lives before they make dramatic changes.
It is also unwise to try and “ask for quotes” on renovation when looking at homes. Neither you nor the contractor have time for this in a seller’s market.
Leanne: Because the market was so challenging over the past year, homebuyers are looking to be in their forever homes more than they were in the recent past. They are looking for bedrooms for all the children, so kids don’t have to share a room anymore. They are also looking for an extra room to use for an office, since working from home is becoming more the norm. Guest suites are becoming more popular. And if the kitchen and bathrooms are not perfect, buyers are looking for space that can be customized in the future. If a basement is finished, that’s great, but finish-able basement space is the next best thing. High ceilings and some windows are ideal in a basement.
Leanne: Mortgage rates will likely stabilize somewhere between 5% and 6% in the near future. However, many home buyers are still getting loans below 5%. Overall, these are still historically low rates. We have seen home-sale appreciation slow to accommodate the increase in rates.
Consumers who want to buy a home in the $1M range will often find higher rates, plus the requirement on a jumbo loan generally that you put down at least 20%.
The major implication for sellers is that renovation might make more financial sense than selling and buying a new home. Homeowners who want to sell are seeing their buying power decrease because higher value loans can be challenging. Jumbo loans are not conforming and therefore not eligible to be purchased or guaranteed by Fannie and Freddie. Because of this, banks have stricter requirements for jumbo loans.
Leanne: Banks have seen how homeowners want custom homes and have gotten more comfortable with construction loans. Buyers can more easily get a loan as long as the final home appraises for future value after the project is completed. Banks also take into consideration other aspects of debt to equity for pre-approval for the loan. This is a great time to get a construction loan.
Leanne: Buyers should look at properties for the elements they can’t change: this would be things like the location, the school system, proximity to places of interest, and your commute.
The good news for buyers: the market is not as searingly hot as it was a year ago, but homes are still increasing in value year over year. And if you love your neighborhood, renovation is a great option. You can also consider buying the worst home in the best neighborhood, tear it down and build your dream home.
Whether you plan to purchase a home or stay where you are and renovate, it is important to understand the value of your home and your buying power in today’s market. If you are looking to improve your property, consider speaking to Mitchell Construction. We’ll provide you with the best solutions for the best use of space, beautifully designed. Plus, we’ll advise you on how to get the best value now and for potential resale in the future.
Leanne Mitchell is the co-founder of Mitchell Gatto Team, a real estate group affiliated with Berkshire Hathaway Home Services, Page Realty. Leanne and co-founder, Elizabeth Gatto, established MGT in 2016 in an effort to bring full, concierge-style real estate service to consumers in the Greater Boston area. Leanne is known and valued for her hands-on, process driven approach to buying and selling homes. Her knowledge is backed by her upbringing in home building and investing, along with years of experience and a drive to continue learning. She is passionate about providing practical service to her clients to help them build wealth through their home purchase. Watching her clients needs get met and their dreams for a home realized is what gives Leanne the most satisfaction in her job. Leanne enjoys yoga, spending time with her family and, of course, hanging with her furry best friend, her dog George.
To learn more about the home renovation process, please read our eBook, “The Homeowner’s Guide to Creating the Dream Home You’ll Love.” And if you are ready to speak about your next renovation, please schedule a home renovation discovery session.