Prospective homeowners may be excited to hear that housing inventories, on a national level, are aging. More specifically, older homes are starting to show signs of deterioration and are therefore less attractive to institutional investors. According to RealtyTrac’s Aging Home Analysis, more than 70 percent of the housing stock in the U.S. was built prior to 1990. Perhaps even more intriguing, however, is the amount of current inventory older homes account for. Sixty percent of the houses sold in 2013 were built prior to 1990.
“The high percentage of homes that are at least 20 years old and likely in need of some major repairs is eye-opening,” said Jake Adger, chief economist at RealtyTrac. “However, given the low inventory of homes available for sale in today’s market, this challenge of aging U.S. housing supply can also be an opportunity for buyers looking for a bargain and homeowners looking to update their living space and improve the value of their homes.”
The predominantly old age of these homes may provide a unique opportunity for prospective buyers in the middle class. The average price at which these older homes sold, while slightly lower than newer homes, was not significantly different. Homes built prior to 1990 sold this year for an average price of $233,211 while newer homes had an average sale price of $256,292.
Surprisingly, the unique advantage does not reside within the price, but the competition. Institutional investors, or those investing on a large scale, are less likely to be interested in older properties in today’s market. These investors bought 39 percent of post-1990 homes sold this year. Institutional investors accounted for 73 percent of newer home sales in Nevada, 66 percent in Idaho, 61 percent in both Arizona and Mississippi and 60 percent in North Carolina.
“The lower price point on older homes is not surprising given many are in need of some rehab and are more likely to have maintenance issues,” Adger noted. “But this also presents an opportunity for buyers willing to take on that older inventory. Those buyers can purchase at lower price points and face less competition from institutional investors.”
Despite less competition and smaller price tag, there is still a growing problem amongst older homes. According to RealtyTrac, older homes are more likely to need repairs and do not have floor plans typically desired by homeowners.
Adger pointed to the Federal Housing Administration’s 203(k) program as a vehicle that can help homebuyers take advantage of buying an older home. Available only to owner-occupants, the program can be used to finance the purchase, rehabilitation, or upgrade of an older home and permits homeowners to roll rehabilitation costs into a refinance.
Investors who are constantly getting bought our by large investors may want to consider the prospects of an older property. It may require a larger rehab budget, but it should be easier to purchase.