I have a couple of friends of mine who are actively looking for a house. I actually have been helping them out a bit by using what I learned when bought our house and some additional lessons I have learned. When helping my friends look for houses I noticed some things in our own neighborhood that I think are reflective of some national trends.
Prices for starter homes are rising faster than those for the “next” house. Now this might be just in my neighborhood, but our house could be considered a starter home. It is fairly small (1344 square feet) and we got a pretty good deal on it. We paid about $138 a square foot. Just yesterday a house went on the market that was smaller than ours and doesn’t have some of the amenities that we have and was priced at $175 a square foot. That is 20% in just over 3 years that the market has risen in our area. That is great for us if we ever want to sell, but it could squeeze some people out of the market.
However, if we would have bought a house in Massachusetts, we would’ve paid, at least 50-$100k more for our house. So I definitely can see some folks in Massachusetts moving down to where we are (we have the best restaurant scene in the country) and driving up smaller home prices even further.
It also doesn’t hurt that we live less than a mile from two colleges, 100 yards from a prestigious private school and less than 100 yards from a Dunkin Donuts (I mean that is why you want to buy right there).
In other parts of the country (e.g. the Midwest) they would build new homes. However, in New England, particularly in the suburbs and urban areas, there are no new places to build where you would have large housing developments, which is another reason that housing prices will continue to rise for starter homes in our neighborhood.
Larger homes, however, aren’t selling as well. As I noted smaller homes seem to be doing pretty well, at least in terms of price, but some of the bigger homes in our area aren’t appreciating as fast, or at least that seems to be what is going on.
For example, a few streets over (same neighborhood) there was a beautiful 2800 square foot home, totally redone (I went to the open house) that sat on the market for six months. Part of the reason is that it was priced at almost 300k. In our neighborhood, it seems that houses that are over 2000 square feet and pushing 300k or over tend to sit on the market for months at a time. Finally, someone did buy this house, but bought it for about $265k. There are several other homes in our neighborhood that are priced at over 300k that have sat on the market for months.
I know this is anecdotal and certainly does not speak for the rest of the country, but it seems that small homes, at least in our neighborhood (it is one of the best in the city I guess) prices appear to be on the rise more than those larger homes.
If you live in New York, San Francisco, Washington, D.C., Boston or other markets houses are probably going up no matter the size, but for our particular neighborhood and the city at large it seems that the smaller homes are on the rise even more.