As their lives and families grow and change, nearly all homeowners reach a point where they need to decide between looking for a new place and just fixing up the one they have. After a fierce—and relatively brief—shift toward moving over renovating, a recent study by Discover Home Loans has found that 79% of homeowners now would rather renovate than buy a new place.
"The shock of seeing interest rates rise is impacting homeowners' thinking in terms of cost to finance their projects," says Rob Cook, vice president of marketing at Discover Home Loans.
But even with shifting economic conditions, is it smarter to move or to renovate right now? We asked a few experts about how market predictions and the rising costs of building supplies continue to affect this choice. Read on for their thoughts, plus advice on how to decide which is right for you.
Waning Home-Buying Interest
To fully understand the current market, Dan Demian, CFA candidate and senior financial advice expert at personal finance app Albert, says you need to look at the 10-year picture. Mortgage rates rose in the years leading up to 2020 and then dropped dramatically to a 10-year low in January 2021, he says. Since then, they've climbed again, hitting the highest rate since 2009 in May 2022, Demian says.
Cook says this climb is affecting what buyers can afford and whether they'll even be approved for a loan, as it impacts their monthly payment.
Why Renovating Is a Good Option
With these shifts, it's easy to see that the grass is not always greener (or more affordable) in a new home. That's something 79% of respondents to Discover's survey, which included 1,531 homeowners across the U.S., agreed with when they said they were instead opting to improve the home they already lived in—and with 78% also viewing home remodeling as an investment, according to Cook, it makes sense that there would be comparable interest in improving that investment.
Their reasoning differed, but 27% of those surveyed said renovating was a better way to personalize their home, and 26% said it was cheaper to renovate than buy a new home. Respondents also said it would give them a sense of accomplishment to complete a renovation. About 9% said it was too stressful to find a new home at the moment, and 7% said the current housing market had limited options.
Of those Americans looking to renovate, 42% said their projects involved mostly routine maintenance, while 31% planned to update their appliances. Others had bigger projects in mind, with 31% redoing floors, 29% remodeling bathrooms, and 28% remodeling kitchens.
According to the same survey, younger homeowners are more willing to tackle renovations.
"There's a really strong, pronounced generational shift," Cook says. "Millennials have tremendously high levels of interest in remodeling, with 77% doing renovations in the next year."
If you do decide to renovate, be careful about how you decide to finance your project. Cook points out that rising interest rates make refinancing home loans a bad option, but home equity loans could let you tap into some cash without affecting your interest rates.
Amy Richardson, CFP with Schwab Intelligent Portfolios Premium, cautions homeowners to never tap into their retirement savings for such projects.
"It's best to consider that money off-limit," she says. "A home equity line of credit (HELOC) might be a good option for larger expenses. HELOCs are generally low-interest, and you only pay interest on what you actually borrow."
Should You Move or Renovate?
Cook says the key to making a choice is doing the math. Discover Home Loans and similar services offer mortgage calculators where buyers can factor in their income, down payment, and current loan interest rates to see how much home they can afford.
Similarly, if you're considering a major renovation, you'll want to start by getting current quotes for those projects. The Discover Home Loans survey found that 64% of homeowners who received quotes for a renovation said the final cost went up by the time the project was completed, mostly due to increasing supply costs (as we've seen with lumber prices), and 48% said their project was delayed because of material shortages.
Richardson points out that, even if you've decided a renovation is less expensive than a new home, those costs can easily change.
"Be realistic about the fact that renovation projects frequently go over budget," she says. "Consider adding an additional 20% or so [to your budget] for project overruns."
Once you've factored in the differences between buying and renovating, take a look at the market, as well. Demian suggests talking to local real estate agents for their insight into how a bathroom or kitchen remodel could affect your resale value. Those same sources can tell you more about what to expect if you instead opt to buy in the current market.
"Often, renovations may seem valuable to us but may not add significantly to the value of your house, especially in a buyer's market," Demian says.