6 minute read
Q&A
Joe answers questions he received from clients. Feel free to submit your own question. Email us: joeholmes@kw.com
If you’re renovating a home, where do you start?
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The more important question when renovating a home is knowing where to stop. There really is no off switch and the project can simply keep going and going. You have to define the purpose of the renovation first. If it’s for you personally to enjoy the home – then it’s a combination of function, space and budget. If you’re renovating for the purpose of listing a home or purchasing/ renovating/selling – then you have to get your ducks in a row. Cosmetics go a long way! Paint is the biggest return on investment followed by flooring. From there you need to decide on price vs. reward. If you’re doing a kitchen remodel, do the whole thing – not just parts. If you’re going to do the kitchen but your bathrooms are outdated, you may need to do those too. This is that ‘off-switch’ I mentioned – where to stop. If the kitchen & baths will cost $30k, how much resale will you get out of it? Of course, that’s where your realtor can help. One thing not to skimp on is the staging! Presentation, presentation, presentation!!!
How does the market look for ’23 so far?
Great question and Minnesota Seasonality is back! Our real estate activity has always had seasonal aspects with our slower months being December, January and February. Over the last couple of years of a crazy hot buyer market, we pushed through seasonality and didn’t really have the usual downturn in activity. Well, it’s back and pretty sure 7% rates in October helped that along! Rates are hovering at 6% and do see days here and there below that as well. We had a 30% drop in homes sold in January of ’23 compared to January of ’22. I’m not going to go as far as to say we’ll drop that much year over year but feel it was more an indicator of that seasonality coming back into play. We had a crazy amount of snowfall this year too which slows people down a bit. We do expect a slight drop in overall sales in the metro this year but if you look at the charts in Holmes on Homes –it’s still a robust and healthy real estate market.
What about home prices? Will they come back down?
No, home prices aren’t going anywhere but up. They may be a little flat and could see a slight decline potentially in the luxury market but overall home prices will continue to go up. Over time, prices go up. It’s as simple as that. Home appreciation for decades and decades has trended at a 4% annual increase. There are small blips on the radar of over & under valued markets. Most recently, our crazy hot covid market was over-valued by about 12%. This does not mean prices are coming down 12% or a correction is coming. The appreciation will be flat and not as apparent, but the longterm trend is 4% annual appreciation. So if you’re waiting for the bottom to drop before you buy, it’s not a good strategy.
When will the listing inventory bounce back?
The million-dollar question and a tough one to answer. It depends on many factors including the demand side of the equation. Part of why we have low inventory is that homes are selling. Even though our ‘days on market’ has increased to 40+ days, it’s still a very good market for sellers but let’s focus on sellers. New Construction starts will help us on inventory but builders aren't putting up spec homes like they used to. They’ve slowed down a bit with the interest rate hikes. The record number of sellers that just bought in the last couple of years all have 3% (give or take) interest rates. Given that rate will never be seen again AND most people don’t sell for a while – it could take a few more years to see those homeowners in the market. Foreclosures.. HA! Don’t count on it. They currently make up less than 1% of our market and with the advent of iBuyers like Open Door – I don’t suspect we’ll see any inventory from foreclosures making a dent. It’s going to take some time and assume we’re in a 3-5 year range before we see “normal” inventory again.
Did your kids really make that chocolate cake.
Oh yeah...for sure! They love being in the kitchen and making things. Parker saw the picture of the cake on the cover of the Food & Wine magazine and was looking at the recipe. He asked if they could make the chocolate cake over the weekend and who am I to say no? We did cheat on the icing though and didn’t actually make that. The icing was packaged but they did the rest including making the mousse, whipping eggs, baking the cakes, trimming them, etc.. They love that stuff and it turned out really nice. Take a look at the QR code in that section for the video…it’s hilarious!
Where do you see rates going this year?
HA! All over the place.. hang on for the ride. Keep in mind that when the Fed changes rates, it doesn’t equate to your mortgage rate. There are many things in between the Fed Funds rate and mortgage interest rates available to you. When we began writing this it was March 1st and the 30-year fixed was 5.875% to 6%. Today it’s March 13th and we’re at 6.5%. You can get 6% but you’d have to pay a few points to get there (points being a % of the mortgage amount). From what we watch and people we follow, we expect rates to stay around or below 6% for the year. We’ll see how this goes. Part of that expectation is that inflation was on its way out and unsure of that at this time. It may take a few months longer to see inflation slow than we originally expected. Keep in mind the rate available to you for a mortgage has a ton of personal details built in. Credit score, debt-to-income ratios, loan-to-value, purchase/refi/cash-out refi, type of property and so on. Remember that your rate isn’t permanent!
