"Real Estate is Local" Beats Overall Market Trends

Zillow: these Honolulu fixer-uppers are at least $1 million

The WSJ real estate section declares, Nobody Wants to Buy a Fixer-Upper Right Now [bold added]

Real-estate agents say buyers right now seem in no mood to take on the additional costs and headaches of major renovation projects... It is one reason sellers are receiving an average of three offers now, compared with around six a year ago, according to the National Association of Realtors.

The drop in demand for unrenovated homes is mostly driven by high mortgage rates, buyers and their agents said. Fixer-uppers are always a risky proposition for buyers, but now they are more costly as the rates for home loans and construction loans have both increased, on top of high property prices.

This push higher in rates has widened the gap in sale time between turnkey and non-renovated properties, say agents. For sellers, this means a home in need of repair often sits on the market longer unless they attempt to do more work before listing....

Anything that sits on the market for more than a month is usually either overpriced or in need of significant repairs or updates, said Taylor Marr, Redfin’s deputy chief economist. Homes stay on the market for a median of 27 days, up from 19 days a year ago, according to Redfin.

“Most home buyers right now simply don’t have enough money left over to invest in major repairs or remodeling,” said Marr.

We foresaw the drop in demand when we ran the numbers 12 months ago. The overwhelming majority of home buyers must use a mortgage to finance part of their purchase price, and the main factor behind the drop in home prices is the doubling in mortgage rates.

Repair costs are usually paid from the buyer's cash reserves, because the original mortgagor won't lend on a future uptick in value. If the buyer is fortunate to obtain a home improvement loan, that rate is likely higher than the mortgage rate and in any event the loan must be repaid quickly. That's why, in general, prices are dropping more on old homes in need of repair than on homes in general.

That said, we are personally aware of at least four fixer-uppers in Hawaii. All the homes require repairs to such an extent where two may be torn down. Yet demand remains strong and prices on these old homes seem to be at or above 2021 levels, when interest rates were much lower.

When deciding what to do with a specific property, be aware of what's going on nationally but it's more important to remember that all real estate is local.