Most homebuyers today want to buy a home, but very few want to buy a project. Nice work if you can get it, but even in our slightly leveling-off market, it may not be so easy.
Unfortunately for buyers, there is still a lack of inventory in most markets around the country. Our local market is no different with only a 2.7-month supply of available properties as of the end of May, higher than last year but still well below a 6-month availability, which is considered a healthy market.
The challenge for buyers has a lot to do with increased mortgage rates. Purchasing a home that is fully renovated may cost more but if the buyer is qualified, this additional cost can be financed and become part of the overall underlying mortgage. Even at today’s higher rates, 6.67% on average at the end of June, it’s still better to have the work done before purchase than to renovate after purchasing. Coming up with the cash to renovate or finance the renovation is also subject to today’s higher interest rates and shorter repayment terms.
The challenge for sellers is that they are no longer getting multiple offers on their property no matter what condition it’s in. According to the National Association of Realtors, sellers are receiving an average of three offers now, compared with around six a year ago. The consensus is that renovated properties sell quicker than unrenovated properties, which appears to be true for both primary homes and second homes.
Real estate professionals feel that anything that sits on the market for more than a month is usually either overpriced or in need of significant repairs or updates. In Manatee County as of the end of May, single-family homes were in contract an average of 32 days from listing. How long a property is on the market can be influenced by a variety of factors. Here in Florida, the season is a major factor. The market traditionally slows down in the summer, so there are fewer buyers in the pool. That said, some buyers simply have no choice but to purchase a home that needs renovation.
Despite fewer offers on properties, the prices haven’t declined as much as many economists expected. Because of higher mortgage rates, current homeowners are reluctant to sell their properties, keeping the supply of homes on the market lower than normal. Home prices peaked in June of 2022 and declined until January of 2023 when they started to recover.
However, even homes that need renovations are still selling near the list price or slightly higher because there aren’t enough homes on the market to meet the demand. Nationally, the median existing-home price fell 3.1% in May from a year earlier to $396,100, according to the National Associations of Realtors. Manatee County’s median single-family home price at the end of May fell by 6.4% to $515,000.
Buyers with busy lifestyles are less inclined to buy a home requiring major renovations. This is especially true for many buyers in our area who are second homeowners and live out of state. It’s difficult to manage a home renovation when you’re local but almost impossible from 1,000 miles away.
Nevertheless, if you’re in the market for a project, and have the funds to renovate and manage the project, you may be able to come out ahead. Picking your kitchen cabinets and bathroom tile does have an advantage and is nice work if you can get it.
