REAL ESTATE ROLLER COASTER
Value went up, Affordability fell -- What's Next?
From 2012 to 2022, homeowners got accustomed to hefty value gains. The median house price more than doubled.
Rising prices have caused what some call an "affordability crisis"; according to the NAHB, 75% of US families can't afford that median home. Certainly, value appreciation has pushed owning a home out of the reach of many. Economists talk about how technology increases productivity. Can innovation provide currently unrealized benefit to homeowners? If the market gives little value to unseen upgrades and behind-the-wall amenities like wiring capacity, insulation and age of mechanicals that can mitigate expenses, tech-astute buyers can look for homes with discounted features that offer post-closing savings.
Older Americans, now 18% of the population, hold 34% of US residential real estate and Baby Boomers still dominate the homebuyer market. For these owners, finish and design often provide the primary input to decision-making. Appraisers walk through lots of homes, gaining the experience that allows them to recognize building fashion trends, like the minimalist-design contemporaries of the '50s and '60s, or the colonials with elaborate wood molding finishing touches favored by up-and-coming buyers in the '80s and '90s. The real estate market of the early-to-mid 2000 decade reflected exuberant confidence that values only appreciated, as hefty gains seen in 2002 to 2006 evidenced; homes built in that time show that confidence. Certainly, a lot of number-crunching goes into setting a home value, but the current popularity of trends like this affect market appeal and, ultimately, price.
Other numbers may not flow through in a comparison of homes that have similar location and finish. What if owners can use their knowledge of technology to cut into the average $24,000+ expenses incurred annually? Some savings can be achieved with newer appliances and mechanicals that have higher efficiency ratings, as well as by monitoring utility usage with smart in-house tools. Above that, recently built homes were subject to stricter building codes that will lower maintenance costs and typical expenses like utilities and repairs.
As long as today's older-buyer market sees little difference between a newer home and one with renovated finishes and popular updates, recent modern improvements sell below installed cost. These savings, along with more gained from technological upgrades an owner can install, can be the source of unexpected cash flow that makes a home affordable. This may be a market inefficiency that corrects over time, as younger buyers take over more market share and confidence using technology to promote affordability grows. For now, look to take advantage of unrecognized future benefits.