Equity-rich is the term that now defines a large portion of homeowners in the North Phoenix and Anthem area―meaning their property is now worth at least twice as much as the underlying mortgage.
Equity wealth has been increasing nationwide, but Arizona was one of the states with the largest increases where the portion of mortgaged homes considered equity-rich rose from 16.3 in the first quarter of 2021 to 39.7 percent in the second quarter, according to a recent report from ATTOM, a national real estate data provider.
With all that equity, homeowners have been pulling cash out to make improvements, but it can be difficult to decide where to put your time and money to reap the best return on your investment. Valley Vibe spoke with area realtors and mortgage professionals for some tips and advice.
–Chris Busse, Mortgage Loan Originator
“It’s still a great time to do it [refinance] because rates are still low right now…
…so while you’ve got that equity available, now is the time.”
Guardian Mortgage
Staying or Selling?
Industry experts stressed the importance of first determining whether you’re upgrading with the intention of selling in the immediate future, or if you plan on staying in your home for at least the next five years.
With housing inventory levels at historical lows and home values at all time highs, many homeowners are choosing to stay put for the long haul, or at least until the bidding wars and housing shortages settle a bit in the metro Phoenix area. And as a good number of homes in the immediate area approach the 15–20 year age, repairs, improvements and updates have topped the to-do list for many property owners.
‘Now is the Time’
Professionals we spoke with agreed if you’re thinking about tackling any significant home improvements in the near future, now is a great time to refinance and take advantage of the low interest rates.
Mortgage Loan Originator Chris Busse, of Guardian Mortgage, said the bulk of his recent work has been cash-out refinancing of first mortgage loans, home equity loans and home equity lines of credit. People are making home improvements such as kitchen and bath upgrades, and yard projects including pools and landscaping, but also having that extra equity is helping many with debt consolidation, he said.
“It’s still a great time to do it because rates are still low right now but have been trending up over the last couple of weeks,” Busse said, adding that as certain federal programs currently in place begin to taper off, an uptick in rates is quite possible. “So while you’ve got that equity available, now is the time.”
In many cases homeowners are refinancing at a lower rate and are able to afford to do a lot of improvements without a significant change in their monthly payment, said Realtor Terry Donatto, of Prickett Realty.
Where to start
Typically, kitchen, bath and flooring updates offer the best return on investment. Whether it’s best to make minor improvements when it comes to kitchens and baths, Realtor Jon Baer of Dominion Group Properties said it’s usually better to do a full remodel or replacement. (e.g. If you’re putting new kitchen countertops in, consider whether your cabinets need replacing, first.)
“You might as well enjoy your home while you’re living there and enjoy the latest styles and designs,” he said.
Baer added that if undergoing major renovations like a full kitchen or bathroom remodel and a homeowner plans on aging in place with the home, it would be a good time to plan for the future and consider adding zero-gravity showers, handrails and other accessibility improvements.
Putting in the “wow-factor” kitchen or bath now has immediate benefits to the homeowner from an enjoyment perspective, but can also mean the difference if you do decide to sell down the road, says Donatto. “I would say 85 percent of the buyers I work with look for visual improvements like kitchens and baths, and if there’s a similar house for sale down the street, chances are they’re going to go for the one with the wow-factor,” he said.
To that end, Baer said by updating now, chances are the house will be very marketable and still up-to-date years later.
Energy-Efficient Updates
New air conditioning and heating units, appliances, windows, doors, and roofs might not produce as high of a return rate as kitchen and bath improvements, but they still add a lot of value to your home. And, if you’re staying put for a handful of years, you’ll reap the cost-savings benefits by making the energy-efficient upgrades now.
Upkeep improvements are something all homeowners generally face at some point, and can sweeten the deal for the seller when a potential buyer reads through the list of improvements made and can say, “There’s nothing I need to do from a maintenance standpoint,” Donatto said.
He added that if you had to choose where to put your dollars in this current market if selling is in the near future, “As long as the mechanical items are functioning, it’s best to put your money toward the wow-factor upgrades.”
Baer offered a similar point of view with regard to the lifestyle updates, adding, “We don’t know what interest rates will be in five to seven years and who knows what the cost of a kitchen renovation will be then.”