Dive Brief:
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Smaller homes can provide bigger returns as their prices tend to rise quicker than those of their larger counterparts, according to a new report from NerdWallet, which looked at Realtor.com data for home sales in 20 of the country’s largest cities from 2013 to 2016.
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The smallest quartile of homes recorded the largest median annual growth in list prices at a rate of 8.9%, followed by the second-smallest set at 7.4% for the period. The largest homes saw the most significant increase in dollar amount at $99,790 on average compared to $57,535 for the smaller homes.
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Florida led the way for home-price appreciation, with the value of small homes in the Miami-Fort Lauderdale-West Palm Beach area rising 19.5% annually over the three-year period. The Tampa-St. Petersburg-Clearwater region followed with small homes there jumping 16.6% in value per year.
Dive Insight:
Small homes are in demand, thanks to an influx of younger, first-time buyers seeking homeownership opportunities with a low cost to entry.
Meeting that demand is proving challenging, however. According to real estate website Trulia, entry-level homes make up 27% of its online home searches but only 21% of listings, whereas higher-priced homes accounted for 44% of searches and 55% of listings.
Meanwhile, recent homeownership data supports the notion that homebuying activity among newcomers to the market may be in a holding pattern — despite plenty of demand. While the overall U.S. homeownership rate edged up slightly during the fourth quarter of 2016, the share of first-time buyers fell back to 34.7% from 35.2% in the third quarter.
More than a few factors have been attributed to this trend: shortages of lots and labor; a stringent regulatory environment; a recent uptick in mortgage rates; and uncertain federal policy in the midst of executive- and legislative leadership changes.
Still, many of the country’s largest builders are adding designated home product lines that feature smaller footprints and fewer features to attract price-sensitive, entry-level buyers, with D.R. Horton, Meritage Homes, Toll Brothers and Ashton Woods among them.
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