Staying put: Rather than sell, homeowners stay and renovate

After living in her townhouse for 12 years, Agi Thompson felt an urge to move.

She found a real estate agent and toured a number of homes in northern Palm Beach County. But the search left her frustrated. Homes were more expensive and less plentiful than she expected.

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“There isn’t that much around, and I’d still have to pay $150,000 or $200,000 more than I could get for my place,” Thompson said. “Sometimes you look around and you realize what you have is pretty darn good.”

So Thompson changed her mind about moving, and instead embraced an option that countless homeowners are turning to: She plans to stay in her Palm Beach Gardens townhouse and hire a contractor to gut her kitchen and redo a bathroom.

Americans are remaining in their homes longer than at any time in recent memory. Homeowners who sold this year had been in their homes for a median of 10 years, according to a survey by the National Association of Realtors. Before 2009, home sellers typically lived in their homes for just six years before moving on.

The trend reverberates through the housing market. With homeowners staying in place for longer, fewer homes come on the market. Realtors in Palm Beach County and nationwide lament a lack of properties for sale, as do buyers like Thompson.

“For the price, she felt like she just couldn’t get the value,” said Kevin Spina, a Keyes Co. agent who showed Thompson a number of homes for sale.

Her decision to stay and renovate is an increasingly common one.

“I’m seeing clients I sold houses to 10 years ago, 12 years ago still sitting in the same homes,” Spina said.

It’s a reality that limited the choices Thompson found as she considered a move. And, of course, by not moving, she’s keeping her property off the market.

“Longer tenures and a lack of new construction are both contributing to the current shortage of existing single-family homes on the market, particularly in the price ranges that are attainable for up-and-coming working families,” said Brad O’Connor, chief economist for the Florida Realtors trade group.

Homeowners’ longer stays are part of the reason that home sales have yet to return to pre-recession levels. Before the housing crash, national levels of home sales regularly topped 6 million units a year. Since the crash, sales routinely have fallen below 5 million — despite a growing population, a rebounding labor market and a stock market that has soared to record levels since Donald Trump’s election.

Staying and renovating is a way to cope with a seller’s market characterized by tight inventories and rising home prices.

“By staying put, they avoid the frustration of shopping for a home in this limited, seller’s market,” said Brad Hunter, chief economist of HomeAdvisor, a site that matches owners and contractors. “Some people are saying, ‘It’s a nightmare out there trying to find a home, so I’m just going to make my house my dream home.’”

For renovation contractors such as Marty Wallach of Boynton Beach, the renovation boom is a welcome trend.

“I’m having a banner year, and I’m booked up all through next year,” said Wallach, owner of Wallach Builders & Remodeling. “The floodgates are open on the remodeling market, that’s for sure.”

According to HomeAdvisor, many homeowners are investing in such projects as outdoor kitchens, high-end landscaping, solar water heaters and swimming pools.

“These are the kinds of things you wouldn’t do if you were planning to sell your house in the next year,” Hunter said.

For homeowners, staying in a home for years or decades can be a wise financial move. By not selling, they build equity and avoid real estate commissions that typically cost 5 percent to 6 percent of the cost of the home. They also avoid moving costs and the closing costs associated with taking a new mortgage.

The trend of homeowners staying in place might intensify, in part because of rising interest rates. While mortgage rates have held at rock-bottom levels since the Great Recession, economists expect rates to begin climbing, from less than 4 percent in late 2017 to 5 percent in late 2018.

Homeowners can’t take their cheap mortgages with them when they move, and the thought of taking out a loan at a higher rate might turn off some potential sellers.

Meanwhile, Congress is considering a proposal that would take away a tax incentive for quick sales. Under current tax law, married taxpayers who sell a home need not pay taxes on the first $500,000 in capital gains so long as they’ve lived in the property for two of the past five years. The House tax plan would lengthen that period to five of the past seven years.

“We may have more homeowners staying put for longer,” said National Association of Realtors Chief Economist Lawrence Yun. “That may pull inventory back even further.”

Florida’s property tax system also encourages owners to stay in place. Because the taxable value of homesteaded properties can rise no more than 3 percent a year, longtime owners reap the benefits of low property tax bills.

But moving to a more expensive home resets the clock on the Save Our Homes cap, a consideration that figured into Thompson’s calculus about moving. Before moving into her current home, Thompson said, she routinely moved every few years.

“I used to be the five-year girl,” Thompson said.

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