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How Fixer-Uppers Impact the Housing Market

Buying a home is often the largest purchase anyone ever makes, and it is becoming more difficult for many Americans. According to a recent survey released by Realtor.com, nearly 60 percent of people hoping to buy a home this spring are willing to get a fixer-upper. The increase in these types of home purchases is also having an impact on the housing market.

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More Buyers Willing to Renovate New Home Purchases

Affordability remains the biggest hurdle for many of today's potential homebuyers. Realtor.com reports that close to half of the home shoppers this spring are searching for homes that cost under $200,000. Unfortunately, this is also the segment of the market that has experienced the tightest inventory squeeze.

As home prices continue to rise and supply remains an issue, more home shoppers are willing to compromise to achieve the dream of homeownership. Specifically, a greater number are ready to pull the trigger on grabbing a home that needs some type of work such as a kitchen, bathroom, or even a full remodel.

Realtor.com's survey of over 1,000 people that are currently looking for homes revealed that 60 percent of home shoppers under the age of 55 would consider a home that needs renovation. That number is higher (65 percent) for the 35-54 age group and slightly lower (59 percent) for the 18-34 age group.

What home shoppers are willing to spend on a remodel and their expectations vary as well. Just over half (51 percent) are willing to spend over $20,000 on home renovations, 28 percent will go as high as $10,000, and 22 percent will pay between $10,000 and $20,000.

The survey also reveals that most home shoppers (95 percent) believe they will get a positive return on their renovation investments. Close to one in four (24 percent) anticipate a return of over 50 percent.

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Fixer Uppers Are Impacting the Housing Market

There is a common misconception about fixer-uppers that a positive return on your investment dollars is a virtual guarantee. Not so says Robert Dietz, chief economist of the National Association of Home Builders.

The truth is that what remodeling shows like HGTV are depicting to consumers can be deceiving. When they show that homeowners put in $75,000 and the value of their property goes up by $100,000, you aren't getting the entire picture. “The budgets on remodeling sometimes just include material costs, and often they get a deal on that," says Dietz.

The popularity of HGTV's Fixer Upper show with Chip and Joanna Gaines has popularized certain styles of starter homes and even driven up the prices of homes that come with certain features. According to another study by Realtor.com, starter homes with listings that mentioned "farmhouse sink," "claw-foot tub," or "coffered ceiling," sold for an average of 29 percent above expected values.

On another positive note, consumers are spending to renovate homes at record levels, which can be rolled into a mortgage on a new home loan. According to the Joint Center for Housing Studies at Harvard University, $336.9 billion was spent on remodeling projects in the U.S. in 2018, which was an increase of 7.4 percent from the prior year.