If you are a homeowner and are thinking of doing a renovation, adding to your home or a major remodel instead of buying an upgrade home, make sure it makes sense. Check the chart below and see where you stand before hiring that contractor!
New construction homes are flooding the market which means starter homes will become more plentiful as sellers will now have a new home to upgrade to.
Doing a remodel or addition when the real estate market is nearing the top of the price bubble is dangerous because seller’s markets do not last long and when home prices crash or decline, that addition or remodel may never see a return on your investment for many, many years. Think wisely prior to doing an addition or major remodel. Compare the cost of addition/remodel to an upgrade home and decide what makes sense.
Every bubble cycle in real estate sees this trend because homes start having equity again and people start using their homes as a bank. During the last housing crisis, I can’t tell you how many listing appointments we went on where people did additions to their homes and were horrified to find out their investment wasn’t 100% recovered in the sale. It’s because home prices were low when they wanted to sell and it was a buyers market. Just because you spent $70,000 on an addition at the height of the market, doesn’t mean the value of your home stays high during a crash in the market. It frustrates sellers to no end, but understanding the “why” of it should make understanding it easy and hopefully assist you in making the right choice.
Here is the latest release from the National Association of Realtors. They have come to the conclusion that the return on investment (ROI), is lower than past years because of the rise in home prices and that we are nearing the top of the home prices. There is little room for higher prices and 2018 may be the last year we see the huge prices we’ve been seeing.
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