Bigger isn’t necessarily better when it comes to appreciation. In fact, a new study shows that smaller homes likely will offer a bigger percentage return on a home shopper’s investment.
Read more: New Single-Family Homes Are Getting Smaller
A new study conducted by NerdWallet culled three years of listing data from realtor.com® of the 20 of the largest U.S. metro areas and shows that smaller homes, in general, appreciate at a faster rate than larger homes.
Markets can vary greatly, however. In 17 of the 20 metro areas analyzed, listing prices of the smallest 25 percent homes rose faster when calculated as a percentage, according to NerdWallet. The median annual growth rate for the smallest quartile of homes was 8.9 percent from 2013 to 2016, the study showed. The second smallest group of homes had the second-fastest growth rate: a median annual growth of 7.4 percent.
Florida had two of the metro areas that saw the fastest rate of price appreciation among smallest homes. In Miami-Fort Lauderdale-West Palm Beach, the smallest quartile of homes appreciated by a whopping 19.5 percent each year from 2013 to 2016. In close second, Tampa-St. Petersburg-Clearwater saw its smallest quartiles of homes appreciate by 16.6 percent annually.
Still, while the smallest homes appreciate fastest when viewed as percentage, larger homes appreciate fastest by absolute dollar amount, the study showed. That’s not surprising given a larger home often comes with a heftier price too. Case in point, the smallest homes in the metro areas NerdWallet analyzed saw appreciation, on average, of about $57,535 between 2013 and 2016. Within that same time period, the largest homes saw prices rise, on average, by $99,790.
Richard K. Green, a professor and chair of the Lusk Center for Real Estate at the University of Southern California, says one reason smaller homes are likely appreciating faster is due to less inventory of starter homes available. Buyer demand for starter, smaller homes remains high, however. That could be pushing prices higher, he says.
Source: “Small Homes Can Offer Big Returns,” NerdWallet (Feb. 7, 2017)