Sell or Remodel: What’s Best During Inflation?

Prices are on the rise – at the grocery store, gas station, and lumberyard. They’ve all been trending upward; and it looks like that trend won’t change soon. Inflation is officially here, as marked by the Federal Reserve’s announcement to taper its purchase of securities.

Housing prices are also at historic highs, and it’s likely they’ll continue to rise. Zillow predicts home values to grow 13.6% between October 2021 and October 2022. 

The combination of inflation, which often leads to increasing mortgage rates, with the seemingly unending increase of home values may have you wondering: What’s best during inflation, selling your home for a profit or using home equity to finance home improvements?

When talking to real estate professionals, one thing is certain – there isn’t a one-size-fits-all answer. The direction you take depends on your situation and goals. Here are some factors to think about.

Thinking about selling? Here’s what to consider

Increased sales price means increased profit, making selling a home an attractive prospect. But the math can get complicated, especially if you’re looking to buy a larger or upgraded property.

Ask yourself the following before you call the real estate agent: 

1. Do you want to sell an investment property?

If you own it outright or owe very little on the property, it might be a great time to sell, especially if you’d like to expand your real estate portfolio. 

“If you’re a smaller investor with just a few properties, sell them! Use the money to buy quick fixer-uppers where you can make cheap, simple renovations. They’re essentially free assets because of your profits from selling during inflation.”
– Ryan David, We Buy Houses In Pennsylvania

2. Is the property your main residence?

If you plan to sell your home and you don’t own another property, you’ll want to focus your budget. Selling when prices are high means buying when prices are high. Include closing costs, property taxes, HOA fees, and insurance in your budget. Also consider if the property needs renovations before it’s move-in ready. It’s likely these expenses will be higher than they are for your current home.

Moving into a short-term rental may be a wise alternative. Once home prices start to come down, you’ll be able to afford a larger or more luxurious home.

3. Are you willing to relocate?

The rate of inflation varies from location to location – especially when you look at a more rural area. This could be an excellent time to make a new town your home.

“The move to make – if you can – is to relocate farther out from the city centers. You’ll get more bang for your buck!”
Rick Abbiati, Colony Property Investments

Leaning toward remodeling? Ask yourself these questions

If you’re unable to find a home that fits your budget or meets your wants, then remodeling may be a good fit. As a homeowner, you can tap into home equity with a cash-out refinance. This lowers your rate while financing your home improvements. However, you need to account for inflation-driven increases to costs of labor and materials. 

Here are some factors to consider:

1. Who will do the work?

If you’re considering simple projects, such as a paint refresh, replacing flooring, or new appliances, you can limit the costs by doing the work yourself or bartering with a friend to help you. 

“You can easily revamp your house under a budget. Change the flooring, paint the walls and cabinet, or change the countertops, and you’re good to go. These minor fixes instantly change the look of your home without being heavy on the pocket.”
– Benjamin Stenson, The Norsemen

2. How large is the project?

The scale of the project may determine if a remodel makes financial sense. Larger renovations involving additional square footage, wiring, plumbing, or extensive tiling are likely best left to the professionals. Labor costs add up quickly. As do higher-end materials.  

3. Do you plan to sell in the future?

Compare your house to others in the neighborhood. If it’s lacking curb appeal or specific features, you can start making updates now to reduce future stress.

“Well spent remodeling dollars usually make your home easier to sell, in any market. It’s better to have a home that you can easily sell. Begin repairs now, so when you feel the market has reached a peak, you can sell quickly and convert from hard assets to cash.”
– Robert Taylor, The Real Estate Solutions Guy

Here's another option – refinance your mortgage while keeping your home as-is

If you love your house just the way it is or decide it’s fiscally responsible to hold off on a major remodel, explore a mortgage refinance while rates are still historically low. Rates often increase during inflation, so now’s the time to maximize your savings.

You can also tackle other goals when you lock in a lower rate – reducing your monthly payment, removing mortgage insurance, paying off your mortgage faster, consolidating high-interest debt, or financing a vacation or major event.

Tools and guidance to help you decide

It helps to have data when you’re facing a big decision. Axos Bank is here to help you uncover the relevant details. Use calculators to crunch the numbers. Compare your home’s worth with valuation tools. Or sign up for a Mortgage Rate Watch. Our mortgage experts are also available to help you assess your goals to develop a custom plan that’s best for you.