Move or Improve?

April 6th, 2010

To Write or Not to Write

It is a topic that has been rolling around our collective heads for awhile now.  So when we were looking for an interesting topic for this edition of the A4SR blog and we came across this article by Oliver Marks of House Logic.  Although we don’t reprint articles – we thought that this one makes some interesting points on whether it is better to move or improve your current home.  Most likely expressing points more clearly than we coul.  There really are two sides to this particular coin.  Usually in a debate one side has a stronger argument than the other, however in today’s market.  It really poses some serious questions and requires some deliberate thought on the topic, considering that many of us are facing an equity crisis.   So enjoy the article.

“What do you do when your family outgrows your house, or when the quirks you once found charming about the place just aren’t livable anymore? A few years ago, the answers were easy. “With house values climbing an average of 50% from 2001 to 2005 and lenders handing out big checks to nearly anyone who asked, you could quickly unload a too-small house and use the profits to help pay for a larger one. Or you could borrow against that growing equity to fund a big home-improvement project, with the full expectation of making your investment back someday when you sold. Flash forward a few years, and the rules of real estate have changed. In this marketplace, with home equity shrinking and banks reluctant to lend, is it smarter to move or improve? Here’s some advice to help you decide.

Moving has gotten harder

With median housing prices down 25% since their peak in 2006, some 15 million homeowners—almost one in four—owe more on their mortgages than they could get from a buyer, according to Celia Chen, senior director of Moody’s Economy.com.  And even folks who bought before the big run-up and can afford to sell at today’s lower prices still face steep odds trying to unload their homes with the glut of inventory on the market (36% more lawns wear For Sale signs now than a few years ago). There was an uptick in units sold in early 2009, leading some economists to predict that the market has begun to rebound, but selling a house is likely going to remain difficult for a while.

Still, there can be an advantage to trading up now: If your house has curb appeal and a good kitchen—and you price it right—offers will come. You may not turn a big profit, but once you sell, you become a buyer in this buyer’s market. That means you’ll find what you’re looking for and pay less for it than a few years ago.

To analyze your trade-up options, check local listings to ballpark the price you could realistically get for your home and what you’d have to pay for the next place. Then contact a bank to see if, based on those figures and your financial situation, you’re likely to qualify for the new mortgage. Or do your research online: Investigate home values at online real estate sites and how much of a mortgage you’d qualify for at bankrate.com.

Improving has gotten easier

The economic slump has actually made renovating the home you already own a bit easier. The construction-industry slowdown has lowered the cost of some building materials: Plywood is down 46%, for example, framing lumber is down 42%, and drywall is down 25%, according to Bernard Markstein, senior economist for the National Association of Home Builders. Many contractors are also charging less for labor, to compete for the smaller pool of available jobs. What’s more, you won’t have to wait months for a contractor to show up—chances are he’ll be able to start in a matter of days.

Of course, you’ll still need to come up with cash to pay for the project. And the news is good there, too: As a general rule, improving costs less than trading up. Figure somewhere between $100 and $200 per square foot for new construction or a major remodel, depending on the scope of the project and labor costs in your area. (For help with budgeting and financing, see “Budgeting for a Remodel”) A two-story addition with a family room, bedroom, and bathroom costs an average of $156,309, according to Remodeling Magazine’s 2009-10Cost vs. Value Report.

Now more than ever, though, you need to make sure that you invest your money wisely. In other words, will your $75,000 kitchen remodel increase your home value by $75,000—or by anything close? For guidelines, check out the Cost vs. Value Report, which gives national average cost and payback figures for 30 popular remodeling projects.

To assess what’s right for your particular house, let your neighborhood be your guide. If there’s any chance that you’ll move within the next 10 years (and in this economy, who can be sure?) keep your improvements in line with those of other houses on your block, or you risk losing the money when you sell.

The most important considerations haven’t changed

Your house isn’t just your largest investment, of course, it’s also the place where your family lives. Financial considerations aside, the question of whether to move or improve should be decided by the things you cannot change about your current home: the school district, the amount of traffic on your street, the size and layout of your yard, your commute, the ease of access to markets and malls, and your neighborhood quality of life. If you love the spot, improving makes sense. But if a different location would be an improvement in its own right, then trading up could be the way to go.”

So as you can see it is not a clear cut decision.  There are pros and cons to both halves of the argument.  To be honest we are still having a tough time trying to decide.  So Asheville – the seasons have changed and the weather is right.  What would you do?  Let us know what you think.

A4SR

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