The last 18 months changed what many buyers are looking for
in a home. Recently, the American Institute of Architects released their AIA
Home Design Trends Survey results for Q3 2021. The survey reveals the
70% of respondents want more outdoor living
69% of respondents want a home office (48%
wanted multiple offices)
46% of respondents want a multi-function
42% of respondents want an au pair/in-law suite
39% of respondents want an exercise room/yoga
If you’re a homeowner who wants to add any of the above, you
have two options: renovate your current house or buy a home that already has
the spaces you desire. The decision you make could be determined by factors
A possible desire to relocate
The difference in the cost of a renovation
versus a purchase
Finding an existing home or designing a new home
that has exactly what you want (versus trying to restructure the layout of your
In either case, you’ll need access to capital: the funds for
the renovation or the down payment your next home would require. The great news
is that the money you need probably already exists in your current home in the
form of equity.
Home Equity Is Skyrocketing
The record-setting increases in home prices over the last
two years dramatically improved homeowners’ equity. The graph below uses data
from CoreLogic to show the average home equity gain in the first quarter of the
last nine years:
Odeta Kushi, Deputy Chief Economist at First American,
quantifies the amount of equity homeowners gained recently:
“Remember U.S. households own nearly $35 trillion in
owner-occupied real estate, just over $11 trillion in debt, and the remaining
~$24 trillion in equity. In inflation adjusted terms, homeowners in Q2 had an
average of $280,000 in equity- a historic high.”
As a homeowner, the money you need to purchase the perfect
home or renovate your current house may be right at your fingertips. However,
waiting to make your decision may increase the cost of tapping that equity.
If you decide to renovate, you’ll need to refinance (or take
out an equity loan) to access the equity. If you decide to move instead and use
your equity as a down payment, you’ll still need to mortgage the remaining
difference between the down payment and the cost of your next home.
Mortgage rates are forecast to increase over the next year.
Waiting to leverage your equity will probably mean you’ll pay more to do so.
According to the latest data from the Federal Housing Finance Agency (FHFA),
almost 57% of current mortgage holders have a mortgage rate of 4% or below. If
you’re one of those homeowners, you can keep your mortgage rate under 4% by
doing it now. If you’re one of the 43% of homeowners with a mortgage rate over
4%, you may be able to do a cash-out refinance or buy a more expensive home
without significantly increasing your monthly payment.
First Step: Determine the Amount of Equity in Your Home
If you’re ready to either redesign your current house or
find an existing or newly constructed home that has everything you want, the
first thing you need to do is determine how much equity you have in your
current home. To do that, you’ll need two things:
The current mortgage balance on your home
The current value of your home
You can probably find the mortgage balance on your monthly
mortgage statement. To find the current market value of your house, you can pay
several hundreds of dollars for an appraisal, or you can contact a local real
estate professional who will be able to present to you, at no charge, a
professional equity assessment report.
If the past 18 months have refocused your thoughts on what
you want from your house, now may be the time to either renovate or make a move
to the perfect home.
Source: Real Estate with Keeping Current Matters