Homeowners buck moving trend, opt for upgrades amid high interest rates
by March 18, 2024 10:20 am 708 views
![](https://talkbusiness.net/wp-content/uploads/2024/03/CVR_HighInterestRates_3-11-24-732x384.jpg)
Janacek Remodeling in Rogers has been completing more bathroom remodels recently. Kitchen remodels were more prevalent in past years.
According to the National Association of Realtors, more homeowners are less likely to move amid high interest rates, low inventory and stable prices. Instead, they are opting to improve or add to their homes.
Still, area Realtors continue to see new home demand that recently picked up as interest rates moderated. However, high rates and prices for homes have impacted affordability.
In January, the National Association of Realtors released the trends to watch for 2024 that show many homeowners are more likely to stay put and improve their homes. The following comprise the homeowners’ wish list of improvements or additions:
- Accessory dwelling units
- Home offices
- Media centers and game rooms
- Outdoor spaces
- Remodeled basements.
Kitchen remodels and smaller homes were also noted as other trends to watch this year. High interest rates and lifestyle changes favoring fewer bedrooms were factors in the latter, while the kitchen is among the home’s most used rooms.
Jonathan Janacek, president of Janacek Remodeling in Rogers, said the full-service remodeling company has been taking on more bathroom remodels and room additions recently. Kitchen remodels were more prevalent in previous years, but more homeowners are looking to redo the bathroom as these projects are often more affordable.
![](https://talkbusiness.net/wp-content/uploads/2024/03/CVR_HighInterestRates_JonathanJanacek_3-11-24.jpg)
He said Janacek Remodeling is part of Remodelers Advantage, a nationwide networking organization for remodeling companies, and is not being affected like some remodeling companies in other areas of the country. He said the companies are seeing a slowdown in business, but business is rising for Janacek Remodeling.
“The three Fortune 500 companies in our area continue to drive our economy, and it’s always been a blessing that we’ve had this much growth in our economy,” Janacek said. “Bathrooms have been a big push this year and master bathrooms as well. We’re also noticing some room additions that are picking up as well.”
Janacek said homeowners have scaled back from kitchen remodels and taken on bathroom makeovers as they look to be more conservative with their money and invest to take advantage of the higher interest rates. The bathroom projects include removing bathtubs and installing large luxury-style showers with multiple shower heads, benches and heated floors.
He explained his project list as mixed, which is typical for his company. Some homeowners are adding accessory dwelling units to be listed on Airbnb as a means of additional income. Another recent remodel was a project to convert a basement into a home office. Also in the works is a media center, or listening room, for a homeowner looking to add a sound system with CD and record players and possibly an eight-track player. Projects outside the home that are in the pipeline comprise structures, such as outdoor kitchens.
![](https://talkbusiness.net/wp-content/uploads/2024/03/CVR_HighInterestRates_JenniferWelch_3-11-24.jpg)
Jennifer Welch, senior vice president and managing broker for the Bentonville office of Fayetteville-based Lindsey & Associates Inc., said a lot of the home additions happen in more rural areas. She said parents living in rural areas have helped their adult children by building a shop or garage with an adjacent apartment and allowing one of their children to move into it. Welch, who’s been a Realtor for 19 years, is board president of the Arkansas Realtors Association this year.
Chase White, a Realtor for Collier & Associates in Bentonville, said he knows a Springdale homeowner who refinanced when mortgage rates were 2% to 3% recently added onto their patio. He said few people are moving into a new home only because they are seeking cosmetic improvements. The Rogers native has been a Realtor for more than nine years.
FACING CHALLENGES
Welch said many homeowners with 2% to 3% mortgage rates plan to stay put because they’ve seen how fast home prices have risen here.
“It’s making the affordability of moving up to the next step home … more difficult to achieve,” she said. “They do have quite a bit of equity of course, but when they move up into the new stages of the home with higher interest rates coupled with our increased housing costs, I think the affordability makes it challenging. So, we are seeing where they’re tending to stay in their homes a little bit longer and move only if necessary. We’re seeing them sometimes add on a room or adjust their kitchens and backyards … to increase the value and everyday living of what they need for themselves. That way they can keep that lower interest rate.”
She said home prices are stable currently, but if interest rates were to fall, prices could start to rise quickly. Also, home inventory remains low, but new construction is helping to offset some of this.
Over the past few weeks, she said sales have started to climb as interest rates moderated to an average of 6.75%. She noted some homebuyers recently locked in a 15-year mortgage rate of 5.75%.
HOUSING SHORTAGE
Cecilia Foy, a Realtor for Century 21 Lyons & Associates Real Estate in Siloam Springs, said sales are not likely to go flat here because of interest rates but because of low inventory. She said the Northwest Arkansas market has a housing shortage, especially for single-family homes ranging from three to four bedrooms. Foy of Lowell has been a Realtor for more than seven years.
“Even though the interest rates are higher than they’ve been in the past three years, people are still willing to pay the price if it’s available,” she said. “Very few resell anymore, and the new construction can’t be built fast enough.”
She said many people who move here must opt for an apartment while they wait for a home to become available. And she doesn’t think the issue is going to be resolved soon.
“It’s probably going to be a five- to 10-year dilemma for the area because builders want to make a lot of money off each piece of land because they’re paying outlandish prices for land,” she said. “On top of that, the counties and the cities have so many regulations: They want so many trees planted in the yard, and they want a sidewalk a certain width. So there are things that a builder is required to do.”
Still, buyers will pay 7% interest for a home with three to four bedrooms and two bathrooms, she added. “They’re willing to liquidate their 401(k) to pay cash for it because the market in Northwest Arkansas is still very strong. I don’t foresee that changing.”
GOING SMALL
Some Realtors are seeing the trend toward smaller homes play out here as values rise.
![](https://talkbusiness.net/wp-content/uploads/2024/03/CVR_HighInterestRates_CeciliaFoy_03-11-24.jpg)
Foy said she’s seen new three-to-four-bedroom homes range between 1,300 and 1,500 square feet, down from about 2,000 square feet in the ‘80s and ‘90s.
She likes small homes because they have a smaller environmental footprint. Also, builders have removed “a lot of the fluff” from new homes, she said. “It’s a spec home. Back in the ‘80s, it was likely a custom home. Now, we are into spec homes.”
She said unnecessary hallways have been removed, and some of the building materials that were needed to install fireplaces are no longer necessary. Smaller homes are more efficient, and the utilities are more affordable.
Welch said smaller homes provide affordability for first-time homebuyers. On average, a single-family home in Northwest Arkansas ranges from 2,000 to 3,500 square feet. Depending on the price, this might comprise three to four bedrooms and two to three bathrooms.
White said homebuyers looking for a three-bedroom home in the $200,000 range might consider southwest Missouri. He noted that an 880-square-foot home with two bedrooms and one bathroom with no garage is on the market for $193,000 in Centerton.
BUYING IN
In 2021 and 2022, the low rates led to a market rise as individual buyers and investors, including hedge funds, bought into it, White said. But when rates soared to more than 8% this past fall, business slowed. The market tends to slow then seasonally, too.
White explained a benefit of the slower market is that homebuyers are no longer competing with investors. Another positive is that buyers aren’t paying significantly over price for homes as they were. He said his highest was when a prospective buyer put down $75,000 over price and still didn’t get the house.
“In 2021 and 2022, they essentially had to look in areas that they didn’t want to be in,” White said. “If it was anywhere people wanted to be that was fairly nice, it was just absurd.”
![](https://talkbusiness.net/wp-content/uploads/2024/03/CVR_HighInterestRates_ChaseWhite_03-11-24.jpg)
He said that at the height of the demand, home inventory was between four and five days. The demand was equally strong for homes listed for $300,000 or $1 million. Since then, the supply has risen to about three months, “which is still not great,” he said. Demand has weakened for those looking in the higher price range because of the smaller buyer pool at those prices.
Meanwhile, new homes comprise more of the inventory. In a normal market, he said they would comprise 10% to 12%. Now, they account for about one-quarter of inventory. He said people who have moved several times probably aren’t looking at a lot of the new inventory as it’s mostly starter homes or homes for first-time buyers. He noted that homebuilders are buying down the rate to sell the homes through their lender.
He said rates had declined some but recently rose to more than 7%. The “happy medium” for buyers is between 5.5% and 6%. Homeowners with a 3% mortgage rate likely won’t move unless the homes “hit everything that they want,” he added. “People aren’t itching to get out of a mortgage. That’s why prices are expected to go up even though rates are high.”