Why Americans are renovating, not buying new homes

Homeowners are eager to hold onto the ultralow mortgage interest rates they were able to get after the crash, and they are leery about taking a chance on a move. Many also lack the financial wherewithal to upgrade to a larger, pricier home.

CHICAGO — When John Gedwill’s family outgrew its suburban Chicago home, he didn’t consider looking for a bigger place. His memory of the housing crash a decade ago was still too fresh.

“Real estate isn’t the greatest investment,” said Gedwill, an electrician who lost money on a condo during the crash and watched many people go through similar experiences.

So instead of shopping for a new house, Gedwill decided to build what he calls “a man cave” in the basement of the three-bedroom home he bought eight years ago.

“If you can stay in the same place, with the same mortgage, that’s the way to do it,” Gedwill said as he and his two teenage sons shopped for lumber for a project aimed at making their home more comfortable for the six-person family. “You just add on when you can afford it.”

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Gedwill’s mindset is common among those who owned homes during the crash, and it’s a factor in the still-dysfunctional housing market, according to market analysts.

Before the crash it was common for people to buy starter homes, stay in them five or six years, and then move up to a larger place as their family grew or the home became outdated.

Now, according to research, homeowners are eager to hold onto the ultralow mortgage-interest rates they were able to get after the crash, and they are leery about taking a chance on a move. Many also lack the financial wherewithal to upgrade to a larger, pricier home.

The percentage of homeowners moving up to their next home is the lowest in 25 years, said Todd Tomalak, vice president of research for John Burns Real Estate Consulting. Instead of moving, people are deciding to make starter homes permanent and are expanding and repairing them for the long term, he said.

The trend is so pronounced it’s changed the dynamics of the housing market. It’s fueling brisk sales in the remodeling business and at home-improvement stores, but it’s leaving very few homes available for sale and causing prices to jump from short supply, Tomalak said.

From 1987 to 2008, homebuyers stayed in their homes six years on average before selling, according to the National Association of…

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