Why Starter Size Homes are Boasting Big % Returns!

Realtor.com commissioned Nerdwallet to do a 3 year analysis (2013-2016) of how house size correlated with the annual growth rate of listing prices in 20 of the country’s most populated metro markets.  Based upon total square footage numbers relative to median home sizes in each area, it turns out that smaller homes appreciated at a faster percentage rate than larger homes. When calculated on the basis of dollar amounts, larger homes generated higher dollar rates.  (Larger price tag, larger dollar amount.)

Look at some of these numbers.

1. The listing prices of the smallest 25% of homes grew faster when those prices were calculated on the basis of percentages.
   1. The median annual growth rate for the smallest homes equalled 8.9%.
   2. The median annual growth rate for the “mid smallest” homes equalled 7.4%.
2. Of all the 20 cities analyzed for this study, two metro markets in Florida had the fastest appreciation rates.
   1. Miami/Fort Lauderdale/West Palm Beach equalled 19.5%
   2. Tampa.St. Petersburg/Clearwater equalled 16.6%
3. Larger homes in this Realtor.com study are shown to appreciate more when those prices were calculated on the basis of dollar amounts. (Again, bigger price tag, bigger dollar amount.)
   1. The smallest homes appreciated by $57,535 between 2013-2016.
   2. The largest homes appreciate by $99,790. between 2013-2016.

Key factors to keep in mind in relation to this analysis…for the past 9-10 years, there has been a return to center cities.  Homes in the center of big cities tend to be smaller than homes in suburbs.  Plus, new construction has been down nationwide since the 2007 housing crisis and limited new construction translates into low inventory levels. Low inventory levels equal higher competition for housing available.

Additionally, according to Richard K. Green, professor and chair of the Lusk Center for Real Estate at he University of Southern California,  “People who bought starter homes in 2004-2007 haven’t yet recovered the value they lost during the housing crisis.  Simply,” says Green, “there are not enough starter homes on the market to meet the current demand for them.  This lack of inventory coupled with increased demand equals more price appreciation for smaller homes.”