Should I stay or should I go? With apologies to The Clash, that's the question many homeowners are asking themselves. Does it make more sense to renovate your current home, or should you look for a home that is a better fit for your current needs?
Data from the National Association of Realtors (NAR) suggests that people are choosing the former – or at least rejecting the latter. For two years in a row, the median home duration (the amount of time homeowners have lived in their current home) has been ten years – the highest median home duration value in the 32 years that the NAR has been collecting mobility data.
Data from the US Census backs up this premise, showing a long slow trend of declining moving rates. Approximately 11.2% of Americans moved between 2015 and 2016, the lowest value since the Census Bureau began collecting data in 1948.
Low mobility numbers may represent increased contentment with existing homes, but it probably is more representative of the many challenges faced by homebuyers – both new homebuyers attempting to enter the market and current homeowners attempting to upgrade.
The biggest challenge is finding a home to buy. Currently, there is just over four months' supply of homes on the market. However, economists deem a six-month supply of homes to be a sign of a healthy and balanced market.
The supply is particularly tough in the mid-price and starter home market for two main reasons – investors scooped up many starter homes during the housing crisis and turned them into profitable rental properties, and builders tend to focus on more expensive homes as higher costs and regulatory restrictions make it difficult to turn a profit on more affordable housing.
With an insufficient supply to meet demand, home prices are rising – good news if you already own a home but bad news if you want to buy one.
Potential new homeowners who are priced out of the market are forced into rental properties while they save up the resources to enter the market. In turn, the rental market is booming – making landlords less likely to sell those rental properties. This continues the slowly spiraling imbalance between supply and demand.
Mid-price and higher-end homes are also increasing in price, causing current homeowners to remain gun-shy of taking on fresh housing debt. If you've built up enough equity in your home for proper financing, why not increase your home's value by renovating instead? Spending on renovations has already reached record levels, and, according to data from the Joint Center for Housing Studies at Harvard University, renovation spending is expected to grow 7.7% in the third quarter of 2018 (compared to 6.4% in Q3 2017).
As current homeowners renovate instead of sell, the starter and mid-price home market is squeezed even further and first-time homebuyers face an even greater challenge. In essence, the lack of mobility grinds the entire housing market to a halt because first-time homebuyers have no affordable options. It's all about balance – and the low mobility numbers reflect the increasing imbalance in today's housing market.
Given the above information, we revisit the question – should you stay or should you go? Only you can decide what's right for your situation, but keep in mind that if you decide to go, you face increasing challenges. Start your search well in advance to give you time to find the best home at the right price, and keep your financial house in order to be in a position to take advantage of a good deal when you find one.
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