Smaller House – Big Difference?

CNNMoney published an article this week titled “A smaller house will make a big difference.” It actually had a lot more information unrelated to home size. The first good news statement was that Fiserv expects 95% of the 384 metro areas it tracks to see home price increases in 2012. It’s not a big thumbs-up though, because the average is for only a 0.25% increase.

Freddie Mac forecasts that only 4.8 million homes will be purchased in all of 2012. A market with six months of inventory is considered healthy, so it’s not good news that there’s now more than a year’s worth of inventory. There will be help from sustained low interest rates. Jay Brinkmann, chief economist of the Mortgage Bankers Association, expects mortgage interest rates to remain below 5% throughout 2012.

Buyers Advised to Downsize

As real estate investors, our interest in this article has to do with advice to downsize when buying. Home construction firms expect U.S. houses to average 2152 square feet in 2015, down significantly from the 2600 square feet average during the boom years.

Buyers are being advised to take advantage of very low mortgage rates and take out 15-year fixed rate loans. They’re also being advised to downsize for economy reasons as well as to have a better shot at resale down the road. This trend toward smaller homes with lower utility and maintenance costs is going to pass through to renters. Investors should not necessarily concentrate on the most square footage for the buck. Doing so could result in a tough selling situation when you’re ready to exit the investment.

There appears to be a sustained window of opportunity for investors to buy bargains, finance at low rates, and rent properties for excellent cash flow. Paying attention to this downsizing trend could result in better tenant retention, lower vacancy rates, and greater appreciation.