Nesting vs Flipping in the Current Economy | Prousalis & Papantonakis, P.C.

If there has been a sign of the changing real estate market since the collapse of the housing bubble in 2008, it is the amount of time people are staying in their homes. Where in the years leading up to the burst, homeowners were focused on making investments by fixing up homes and selling them for a profit in the growing housing market – i.e. “flipping” – people are now choosing to stay in their houses longer, opting to build upon their original home structures and improving what they already have, known as “nesting”.

Many homeowners who might have previously moved in pursuit of additional living space are now opting to stay in their homes and pay for a construction project after weighing the options and evaluating the costs of each. Since many homeowners simply want more space but are satisfied with their location and overall house structure, adding to their homes may make more sense than entering the current housing market, which is still experiencing ups and downs as the economy regains its strength.

Home construction has been on the rise despite the tumultuous housing market of the last two years. The National Association of Home Builders’ (NAHB) Remodeling Market Index – which we cited back in our October newsletter as tracking the number of new homes built – increased last quarter largely due to home improvement projects. The future index the NAHB also produces shows continued improvement on the horizon, suggesting that homeowners now have more confidence in the remodeling process.

The index is still below what experts call the “optimism-pessimism” line of 50 on the index, however. Builders maintain that financing is tough to obtain, with the majority of clients still paying in cash. Additionally, projects are up in number, but down in actual monetary value. People are opting to remodel, but the average value of their project is lower than in years past, with many construction companies averaging the value of a current project at ($40,000.00) forty thousand dollars.

Furthermore, falling sales prices have discouraged homeowners from signing up for projects they don’t consider essential, which may be one factor keeping the index from reaching its halfway mark. For home construction to fully regain its strength, home sales have to climb too. Experts at Harvard University’s Joint Center for Housing Studies argue that the home construction market will take time to rebound, saying that the next few months should see the first real spike in home construction requests since the housing bubble burst in 2008.

The federal tax credit for home construction projects that improve energy efficiency is also contributing to the appeal of remodeling, offering a $1500 credit for such jobs. This tax credit is applicable to remodeling jobs that include replacement windows and doors, new roofs, heating and air conditioning systems, and adding insulation, all with the purpose of making a home more energy efficient, which is a cost saver in and of itself.

While the growing trend of nesting may not alter the housing landscape altogether, it does indicate two important changes. First, the real estate market is different than it was, i.e. nesting has replaced flipping, indicating a change in perspective on the housing market. Secondly, the money spent on remodeling is adding to the housing market overall. People are once again investing in their homes, and experts hope that leads to increases in home sales and prices in the near future.