A Tale of Waning Interest: Fixer-Upper Homes in Today's Market
Home Seekers Losing Interest in Fix-Up Properties- Potential Consequences for Your House Hunt
Done deal with the dated digs, huh? Not quite. Lackluster interest in fixer-upper homes has become the name of the game in today's real estate market.
Best to put away those tool belts and roll up your sleeves for a tougher task ahead. You see, a clever concoction of factors has made the fixer-upper lifestyle a far less enticing proposition than it once was.
First-time buyers, younger generations - they can't win. Lovely as it may sound to dive into a fixer-upper project, many just can't tap the equity of an existing home to make it work. Potential buyers must keep a sharp eye on the scope of work and the total cost of renovations before signing on the dotted line.
No more pie-in-the-sky fantasies, pardner. These days, buyers are doing their sums carefully, recognizing the potential headache that lies in store with a fixer-upper home. Zillow's Amanda Pendleton, home trends expert, knows what we're talking about: "Buyers today are doing their homework, realizing that a home in need of extensive TLC may ultimately end up costing them a pretty penny."
So, why are move-in ready homes the preferred choice for today's buyers? Let's crack that nut open.
The Fixer-Upper Saga: A Brief Look Back
Going way back to the mid-2010s, fixer-upper homes captured the imagination of people everywhere, thanks to those home improvement TV shows and social media accounts that whittled down the renovation process into bite-sized chunks. With dramatic before-and-after transformations that promised the world, it wasn't hard to see why these homes became so popular.
Those who purchased fixer-uppers back then were treated to all the perks they'd been led to believe. When the market remained affordable, and their homes appreciated as expected, they marveled at their savvy shopping skills. Fast forward to today, and it's a whole new ball game.
A Changing Landscape
Are you ready for some hard truths? Here comes the tidal wave of disruptions:
- Expensive Building Materials: Thanks to inflation, the cost of building materials has skyrocketed.
- Labor Shortages: A labor shortage means home improvement projects now cost more and take longer to complete.
- Higher Interest Rates: Those higher interest rates mean higher payments on a construction loan or mortgage, cutting into the budget for those renovations.
- Slower Home Appreciation: With home values not appreciating as quickly as during the pandemic, it's taking longer to build equity and break even on a fixer-upper home.
Add all this together, and it's easy to see why buyers are balking at the idea of sinking their hard-earned cash into a fixer-upper home.
The Elephant in the Room: The Figures Don't Lie
The Zillow study Pendleton talked about? Well, it paints a pretty vivid picture. Buyers are paying 3.7% more than expected for remodeled homes. Compare that to fixer-uppers, which are selling for 7.3% less than similar homes. That's the biggest discount in three years! Sounds like a serious case of buyer's remorse, doesn't it?
Now, you might be thinking: "Okay, perhaps renovating a fixer-upper isn't the smartest move for your average Joe. But if I've got the cash and the passion for a challenge, it shouldn't be a problem, right?"
Think again, my friend.
The Nightmare on Elm Street: Financing Hell
Remember when it was easy to find financing for a fixer-upper? Those days are gone, baby, gone. Even if you've got the cash and the enthusiasm, you better make sure you can secure a construction loan or mortgage.
For first-time buyers, the hurdle is even higher. Without the ability to tap into the equity of an existing home, they rely solely on their savings for the down payment. If their debt-to-income ratio is already stretched by the purchase of the home, they may not qualify for a construction loan, leaving them to come up with cash to fund an extensive renovation project. Yikes!
The Long and Winding Road
If you're still hell-bent on tackling a fixer-upper project, you better buckle up, buttercup. First, you've got to navigate the list of challenges that come with homeownership, closing costs, moving fees, hiring architects, designers, contractors, and purchasing building materials - whew!
For the young'uns, it's a different story. Those average home prices are soaring, and young homebuyers simply don't have the funds to put towards a renovation on top of their down payment. In the end, these affordability challenges are what keeps most younger homebuyers away from fixer-uppers.
But wait, there's more! Don't forget the mental bandwidth needed to undertake a renovation project. With folks juggling packed schedules and daily stresses, taking on a renovation can feel like one burden too many.
So, You Want to Sell Your Fixer-Upper?
If you happen to be hawking a fixer-upper on the market, these market shifts might mean you need to tweak your strategy.
"Sellers need to be astute when listing a fixer-upper today," advises Amanda Pendleton, Zillow's home trends expert. Remember what she said about timing the market and listing your home on the Multiple Listing Service (MLS) as early as possible? Take heed of that advice, because data shows that homes not on the MLS sell for a median of 1.5% less!
If you're listing your fixer-upper in the first two weeks of May, you might also be in luck. Research indicates that homes sell for 1.6% more during that time of the year.
Take it from Beth Kirton, senior real estate agent at Rocket Homes: "If you're listing your home on the MLS as soon as possible, you'll have the advantage of reaching millions of potential buyers, maximizing your property's exposure."
Pricing your home correctly and scheduling a pre-sale inspection are also important factors in attracting buyers to your fixer-upper.
The Move-in-Ready Home: The Endgame?
In the face of affordability challenges, it appears that younger generations are looking towards move-in ready homes as the solution.
"A young Gen Z or Millennial buyer may be more willing to fork out a little more on a monthly basis, spreading the costs over a 30-year mortgage, for a turnkey home because they don't have the ready cash to cover a down payment and fund a full renovation," says Pendleton.
As it turns out, the trend towards move-in ready homes isn't limited to younger buyers. Higher costs, combined with a mental bandwidth struggle, are turning many buyers away from the idea of fixer-uppers.
Where Do Fixer-Uppers Stand Now?
While the allure of fixer-uppers may have waned, there remains a market for the simpler and more affordable properties. As Pendleton remarks, "Fixer-uppers may no longer be a great deal for all buyers, but they can still be an astute investment for a certain type of buyer. Those with enough cash saved, ready to put their own stamp on their home, and seeking long-term commitment, may find the fixer-upper market still bears fruit."
The Future of Fixer-Uppers
In a market where affordability remains a challenge, the demand for entry-level, lower-priced homes like fixer-uppers is certain to persist.
Some sellers are holding out, renovating their homes before listing to get top dollar. Homeowners with low-interest mortgages are choosing to upgrade their existing digs rather than sell and search for a better home. The result: fewer fixer-upper homes on the market.
Professional investors and flippers see a golden opportunity, too. They plan to purchase and renovate properties for quick resale.
So, is a fixer-upper still worth considering? If you're armed with a solid understanding of your budget, ready to navigate the challenges, and committed to a long-term project, then, by all means, go for it! But be prepared for the bumps in the road along the way. The days of quick flips are long gone, my friend.
In a market shaped by shifting buyer preferences, rising costs, and a dwindling number of fixer-upper homes, it's clear that the days of the fixer-upper bargain hunt are over. But fear not, there will always be a demand for entry-level, affordable homes, making the fixer-upper market a lucrative one for the right buyers.
References:
- Realtor Magazine: Fixer-Upper HomeBuying Drops - Is It Over?
- Zillow: How Surging Home Prices Impact First-Time Homebuyers
- CNBC: The Federal Reserve Signals Interest Rates Could Go Up in 2021
- Houzz: Room Design Trends for 2022
- In today's real estate market, buying a fixer-upper home is less appealing due to lack of interest, mainly because first-time buyers find it challenging to tap their existing home's equity for renovations.
- Patience, budgeting, and careful calculations are crucial for potential buyers considering a fixer-upper, as they must account for the potential headaches and total cost of renovations before signing the purchase agreement.
- The news of the housing-market shows that buyers today, especially young generations, prefer move-in ready homes due to increased building material costs, labor shortages, higher interest rates, and slower home appreciation.
- Thus, owning a home that requires immediate renovation could lead to unexpected expenses, reducing profit margins and potentially causing buyer's remorse, as highlighted by Zillow's home trends expert Amanda Pendleton.
- Alongside the shift in buyer preferences, securing financing for a fixer-upper has become more difficult, especially for first-time buyers relying on their savings for a down payment and facing debt-to-income ratio constraints that disqualify them for a construction loan or mortgage, making the dream of owning and renovating a fixer-upper ever more challenging.
