The Impact of Home Size on the Real Estate Market

January 1, 2017

As the end of 2016 draws near, real estate experts and investors are paying close attention to market trends. But even the most precise analysis is unlikely to produce cut-and-dry results. Why? Because the biggest trend in U.S. real estate right now is that there are multiple trends happening at once.

The U.S. housing market is becoming more fragmented, real estate analysts say, and because of this, home buyers and sellers are likely to have different experiences depending on their location. According to Kerry Close, contributor to Money magazine, national home prices are likely to continue their upward movement; however, how well individual buyers and sellers fare in 2017 could vary significantly.

“Nationally, home prices are expected to keep rising, albeit more slowly – 3.5% in 2017, vs. 4.5% in 2016, per Moody’s Analytics projections,” Close writes in a November 27 article. “But even more so than in recent years, your position is now going to hinge on what and where you’re buying or selling.”

For instance, a condo owner in a busy metropolitan city who aims to sell and move to a house in the suburbs will likely do better than a McMansion owner trading in for an urban townhome. This is because of one specific trend we’re seeing in the current market (one that will most likely continue into 2017): Smaller homes are seeing much more rapid price growth than larger homes.

Not only are smaller homes building equity faster, urban areas are experiencing sharper price appreciation than less populated areas. This means homeowners in the city are likely to be in a better position than homeowners in the outskirts.

Homeowners who are hoping to make a move from the suburbs to the city should brace themselves, says Close. “Inventory has tumbled among less expensive homes, and your money may not buy as much as you expect.”
Close offers some good advice, though. For growing families looking to trade up to a larger home, Close says they’re in the “housing market’s sweet spot, and the first part of 2017 should be a particularly good time to strike.”

Close backs up the claim with some numbers: Between 2011 and 2016, the average price on a two-bedroom house increased 59% nationwide. By contrast, four-bedroom houses rose 41%. These figures came from an analysis by Attom Data Solutions (formerly RealtyTrac). Furthermore, Close says that inventory has risen at the higher end of the market, “climbing almost 8% for homes in the $500,000 to $750,000 range.”

Those in the opposite position are likely to have a tougher time. For buyers hoping to downsize, or first time buyers looking for a starter home, Close says they’ll be facing a tight market with low supply and high competition. Close advises being flexible, like being open to living farther from the city center. According to data from Redfin, the average price per square foot in overall metro areas has shot up 52% since 2011 – but prices in the “urban cores” has risen a whopping 76%.

Likewise, buyers who are willing to purchase a home that needs a little TLC can often get a better deal. For mortgage professionals, this opens up an opportunity to market your renovation loan products. With the ability to finance both the home purchase and the costs of certain upgrades, renovation loans such as the FHA 203(k) Standard mortgage can help buyers obtain homeownership through affordable, single-close financing.

Photography by [Andrey_Popov] ©

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