Homeowners appear to be spending more on property improvements while waiting for the right time to sell. In October, expenditures on existing homes, including renovations, additions, and alterations, rose 2.9 percent year over year, according to a new report from BuildFax, a firm that provides property condition and history data.
Home prices are outpacing wage growth significantly, and along with rising mortgage rates, more homeowners are feeling stuck in place. “As a result, homeowners, unable to re-enter the housing market, are reinvesting in their existing properties,” says BuildFax CEO Holly Tachovsky. “Homeowners may feel unprepared to enter the housing market, but they are making larger investments in the health of their existing property.”
Home maintenance activity may signal the most active housing markets, according to BuildFax. Minnesota has seen some of the most significant maintenance activity over the past year, leading the nation in per capita maintenance volume since 2013. New listings in Minnesota have also fallen the past three years. But the average sales price of properties has risen more than 5 percent annually in that time, the report notes.
Some homeowners are adding accessory dwelling units, also known as granny flats—which are small living spaces designed to house a family member or renter. California has seen the most growth in ADU construction and maintenance. ADUs in the state have grown by nearly 54 percent so far in 2018 compared to a year ago. Oregon and Washington are also seeing a large uptick of ADUs.
Millennials who put off homeownership may be severely curtailing their ability to build wealth over their lifetimes, warns a new report from the Urban Institute. Buying a home at an early age offers a “big bang for their housing buck,” concludes the report’s authors, Hyun Choi and Laurie Goodman.
Researchers tracked individuals since 1968 to identify those who reached age 60 between 2003 and 2015 and how homeownership has affected their finances. Of those now in their early 60s, individuals who had purchased their first home between the ages of 25 and 34 had a median housing wealth of $150,000, while those who waited to buy until they were between 35 and 44 had $72,000 less. Those individuals who did not buy until 45 or older had median wealth of at least $100,000 less than those who purchased between the ages of 25 to 34, according to the study.
Those who purchased their home at the youngest ages—before 25—had the second largest amount of equity, at a median of $130,000, according to the study. Researchers said they likely didn’t have the most equity due to their younger age and because they had lower incomes and less education at that point in their lives. But those who purchased at younger ages still tended to have the largest returns on their initial investment, the report showed.
The differences in housing wealth among the age groups is due to home appreciation and paying down their mortgage debt, the researchers note.
Half of the older adults in the study’s sample bought their first home between ages 25 and 34; 27 percent purchased their first home before age 25. That is much higher than today’s generation: In 2016, 37 percent of those between the ages of 25 and 34 owned a home, as did 13 percent between ages 18 and 24.
The delay in homeownership for millennials could have long-term economic consequences. Equity is usually the largest single source of personal wealth. “While people make the choice to own or rent that suits them at a given point, maybe more young adults should take into account the long-term consequences of renting when homeownership is an option,” the researchers note in the report.
The architectural design of buildings may be partially to blame for aiding the epidemic of obesity in America, suggests a new report from the nonprofit Trust of America’s Health. While much emphasis has been placed on enhancing outdoor spaces such as bike lanes and sidewalks, the report notes, planners and builders have been less focused on improving building interiors to enhance health.
Research finds “a link between built environments—all the human-made physical aspects of a community—and both physical activity and obesity,” according to the Trust’s report. The nonprofit is urging architects to be more mindful of how the design of interior spaces can increase physical activity, especially because research indicates the average person spends about 90 percent of their time indoors. Today, nearly 40 percent of Americans are obese, including 18.5 percent of children under the age of 18, the report notes.
Helping Residents Live Longer
Architects are not only experimenting with designs that could help shrink waistlines but also potentially increase a person’s lifespan.
Some cities have adopted measures to make stairways a more prominent design feature in homes in order to fight obesity. New York, for example, has adopted “active design guidelines” urging the need for prominent placement of stairs, ramps, and other elements to increase physical activity. The guidelines also downplay elevators and escalators as options for movement indoors.
The Trust also notes that highly visible, centrally located staircases that are enhanced by artwork or light exposure could urge more people to take the stairs instead of riding in the elevator in commercial buildings. “It is imperative that architects find ways to include exercise as part of one’s everyday experience within public as well as private buildings,” an article in Architect Magazine notes. “After all, fitness should not be an exceptional activity but a common one made irresistible by design.”
Inflated home appraisals are partly responsible for what the Federal Housing Administration expects to be a $14.4 billion loss in mortgage insurance over the next few years—a cost that likely will be passed on to borrowers, according to an agency analysis. If the losses continue, the FHA may be forced to raise insurance premiums on its mortgages, The Wall Street Journal reports. The FHA insures about 11 percent of single-family residential mortgage debt.
The issue of inflated appraisals first surfaced in the reverse mortgage market. Homeowners use reverse mortgages to borrow against the value of their homes, and their lenders are repaid when the properties sell. But an inflated appraisal could result in the lender not recouping the entire value of the loan. In that case, the FHA is responsible for coming up with the difference.
Brian Montgomery, head of the FHA, says a review of 134,000 mortgages insured by the agency found that at least 37 percent of the properties were overvalued by 3 percent or more. Reverse mortgages make up about 6 percent of the FHA’s insurance portfolio.
The FHA says it has initiated a new process in which all appraisals submitted under its reverse mortgage program must be reviewed before lenders can close on a loan. Under this new process, the FHA will order a second appraisal if it believes a home has been overvalued.
Inflated appraisals were blamed for the housing bubble a decade ago. They decreased in frequency in subsequent years, but now they’re resurfacing as home prices skyrocket, housing officials say. “Appraisers seeking future business have little incentive in jeopardizing a loan closing by underestimating the collateral value,” according to a 2017 study by housing officials. That study prompted the FHA to do further investigation into the issue.
As mortgage rates rise, more buyers in expensive metros are turning to adjustable-rate mortgages to curb costs.
But the potential savings between a fixed-rate mortgage and an adjustable-rate mortgage is narrowing. The average rate on the 30-year fixed-rate mortgage and 5/1 adjustable-rate mortgage have both jumped by about 70 basis points from August 2017 to August 2018, according to Freddie Mac. ARMs, however, still do typically offer a slightly lower initial interest rate that then rises after a set period, such as five or seven years.
ARMs are more common in expensive metros and among home buyers who are borrowing larger balances on their mortgage loans, according to CoreLogic, a real estate data firm. “As ARMs have a lower initial interest rate than [fixed-rate mortgages], buyers see bigger monthly savings in the initial payment, especially for bigger loans,” CoreLogic notes on its Insights blog.
For example, the ARM share is highest in metros like San Jose, which had the highest average sales price. San Jose had the largest share of ARMs in 2018, according to CoreLogic.
ARMs accounted for 51 percent of the dollar volume among mortgages of more than $1 million that were originated during August 2018. Among mortgages in the $400,001 to $1 million range, the ARM share was about 21 percent, and in the $200,001 to $400,000 range, ARMs accounted for just 7 percent of the mortgages.
As of August 2018, ARMs comprised about 15 percent of the dollar volume of conventional single-family mortgage originations. The ARM share has remained relatively stable since 2010, but has risen in some geographic areas and at certain higher price points.
ARMs earned a bad reputation during the housing crash when homeowners faced resets from their initial interest rate and could no longer afford their monthly payments. The ARM share was more than 50 percent during mid-2005 but then dropped to a low 4 percent in early 2009. Stricter underwriting requirements from lenders in recent years may have discouraged ARM volume from taking off again, CoreLogic notes.
A labor shortage of remodelers is prolonging or delaying kitchen and bath projects, according to a new report released by the National Kitchen & Bath Association. The labor shortage could also lead to higher project costs.
NKBA members cite delays on 30 percent of jobs due to a shortage of contractors, according to the report. Installers, carpenters, and kitchen and bath designers are among the toughest jobs to fill.
“The shortage of tradespeople will continue to have a significant impact on the United States’ macro economy, and we are concerned with how this shortage is impacting the kitchen and bath industry,” says Bill Darcy, CEO of the NKBA. “We will work with the industry and similar trade associations to focus on attracting strong next-generation talent to take on these important jobs that fuel the economy.”
NKBA members say the shortages are likely due to the limited number of younger workers coming into the industry. They recommend raising awareness about the benefits of a trades career, such as the income, steadiness of work, and the flexible work schedule, when trying to attract new talent.
In the first year of ownership, 44 percent of homeowners say they experienced an unexpected home repair. And 12 percent said they experienced a surprise repair within their first month of moving in, according to a new NerdWallet survey of about 2,000 U.S. adults.
Nearly half—or 48 percent—of surveyed American homeowners say unexpected home repair costs have caused them anxiety. Thirty-one percent of homeowners say they do not have money set aside for home repairs or improvements.
“Unexpected home repair costs can be a nightmare, especially for first-time home buyers,” says Holden Lewis, NerdWallet’s home expert. Buyers are already bogged down with the cost of buying a home, closing costs, moving, and outfitting their new home. “On top of all those expenses, you’re expected to keep some savings in reserve for emergency repairs,” Lewis says. “Don’t kick yourself if you don’t have an emergency fund left over after you buy your house. But you’ll be a less anxious homeowner if you make it a priority to build up that fund.”
Mortgage rates mostly held stable this week, a welcome relief to home buyers.
“Despite recent market volatility, mortgage rates remained steady this week,” says Sam Khater, Freddie Mac’s chief economist. “The stability in mortgage rates reflects the moderation in inflationary pressures in the economy due to the lower oil prices and subdued wage growth. On the margin, lower energy costs are a positive for the home sales market, particularly for lower-middle income suburban buyers who spend proportionately more income on transportation costs.”
Freddie Mac reports the following national averages with mortgage rates for the week ending Nov. 15:
30-year fixed-rate mortgages: averaged 4.94 percent, with an average 0.5 point, unchanged from last week’s average. Last year at this time, 30-year rates averaged 3.95 percent.
15-year fixed-rate mortgages: averaged 4.36 percent, with an average 0.4 point, increasing slightly from last week’s 4.33 percent average. A year ago, 15-year rates averaged 3.31 percent.
5-year hybrid adjustable-rate mortgages: averaged 4.14 percent with an average 0.3 point, unchanged from last week. A year ago, 5-year ARMs averaged 3.21 percent.
Grays, mixed metals, and farmhouse styles are some of the most popular trends for remodelers taking on sprucing up their master bathroom.
The 2018 U.S. Houzz Bathroom Trends Study is based on a survey of more than 1,100 homeowners who are planning or recently have completed a master bathroom renovation. Some of the trends that emerged from the report:
1. Seeing gray: Gray colors continue to dominate for walls and flooring in the bathroom. Gray cabinets are also gaining popularity, climbing from a 10 percent share in 2016 to 16 percent in 2018.
2. Taking the upgrade: More homeowners are upgrading their master bathrooms with special features when they remodel. The most popular premium features are dual showers, one-piece toilets, vessel sinks, and built-in vanities.
3. Mixing up the metals: Two in five renovating homeowners do not match metal finishes across fixtures and hardware in master bathrooms. Of the 58 percent of renovating homeowners who do match metal finishes, the most popular options are matte nickel and polished chrome (38 and 28 percent, respectively).
4. Going a little country: Farmhouse styles are jumping in popularity. While contemporary style continue to be the leading choice among renovating homeowners, the style has dropped over the past three years. Farmhouse style, on the other hand, has more than doubled in popularity, from 3 percent in 2016 to 7 percent in 2018.
5. Making it accessible: The majority of baby boomer homeowners (ages 55 or older) are addressing aging-related needs during master bathroom renovations. Nearly half of renovating baby boomers are changing the bathroom layout, and one-third are removing the bathtub. Other upgrades include installing accessibility features like seats, low curbs, grab bars, and non-slide floors in upgraded showers and bathtubs.
6. Building a master suite: The study found that homeowners are focusing on their master suite as a whole, not just the bathroom in their updates. Nearly half of master bathroom projects also were accompanied by master bedroom renovations (46 percent). Some homeowners are making their master baths even larger than their bedroom. One in ten master bathrooms is the same size or larger than the master bedroom (11 percent).
The last few years, the home improvement business has been booming as more homeowners look to spruce up their homes. But are owners getting too confident that they can do it all themselves? “Costs, pop culture, and perhaps overconfidence could be driving DIY culture,” according to a new study from NerdWallet, a personal finance website.
NerdWallet’s 2018 Home Improvement Report found that younger generations are particularly gung-ho about tackling home improvement projects themselves than other age groups. Homeowners under the age of 35 take on more than half of all their home repair or home improvement projects themselves, according to the study which surveyed about 2,000 adults in the U.S.
Eighty percent of all homeowners surveyed say that professionals charge too much for labor and materials. Further, 73 percent say there is a wide variety of resources available with enough information that homeowners feel they could do every single one of their home repair or improvement projects themselves if they chose to.
Some homeowners go DIY merely for the cost savings—but they tend to take on smaller projects when they do. Homeowners who did a kitchen renovation themselves typically spent $22,000 less than those who used a professional, according to the report. Landscaping and bedroom renovations were the most common projects that homeowners took on themselves rather than hiring a professional.
While homeowners may be more confident to take on a project, they don’t always complete it correctly. Forty-three percent of homeowners admit to butchering a DIY home project at least once. Thirty-five percent say a home improvement show influenced them to take on a DIY project that ended badly.
“Have some humility when you think about tackling repairs and renovations yourself,” says Holden Lewis, NerdWallet’s home expert. “If it’s a job you’ve never done before, and it’s hard to undo, think really hard whether you should do it yourself, even with the guidance of YouTube.”
For the most serious repairs, like those that involve plumbing and electricity, homeowners do say they are more likely to hire a pro.
