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Aging Housing Inventory Presents Bargain-Hunting Opportunities

by devteam October 31st, 2013 | Share

America’s housing inventory is aging andrnthat perhaps could present an opportunity for bargain-hunting homeowners.  RealtyTrac’s Aging Homes Analysis shows that more than 70 percent of the housingrnstock in the U.S. was built prior to 1990 and that these older homesrnconstituted 60 percent of the homes sold so far in 2013.</p

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“The high percentage of homes thatrnare at least 20 years old and likely in need of some major repairs isrneye-opening,” said Jake Adger, chief economist at RealtyTrac. “However, givenrnthe low inventory of homes available for sale in today’s market, this challengernof aging U.S. housing supply can also be an opportunity for buyers looking forrna bargain and homeowners looking to update their living space and improve thernvalue of their homes.”</p

The average price at which thesern23-year-old plus homes sold, while lower than those more recently constructed, wasrnnot dramatically so.  Homes built priorrnto 1990 sold this year for an average price of $233,211 while newer homes hadrnan average sale price of $256,292.</p

Prospective owner-occupants, howeverrnmay face less competition in purchasing older homes.  Institutional investors, which RealtyTracrndefines as those who have bought 10 or more properties in the last 12 months,rnare more likely to purchase newer homes. rnThese investors bought 39 percent of post-1990 homes sold this year andrnin 10 states those investors purchased at least half of such properties.  Institutional investors accounted for 73rnpercent of newer home sales in Nevada, 66 percent in Idaho, 61 percent in bothrnArizona and Mississippi and 60 percent in North Carolina.</p

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“The lower price point on olderrnhomes is not surprising given many are in need of some rehab and are morernlikely to have maintenance issues,” Adger noted. “But this also presents anrnopportunity for buyers willing to take on that older inventory. Those buyersrncan purchase at lower price points and face less competition from institutionalrninvestors.”</p

Sales of older homes vary byrnstate.  In 14 states homes constructedrnprior to 1990 made up more than 80 percent of sales.  Those states, with the exception ofrnLouisiana, New Mexico, and Kentucky are all clustered in the northeast.  In contrast, older homes made up less than 40rnpercent of sales in Utah and Nevada. </p

While lower prices and lesserrncompetition are advantages, RealtyTrac says that older homes are more likely torneither need major work or upgrades for energy efficiency or disasterrnpreparedness.  Others lack floor plans orrnamenities homebuyers expect today.   </p

Adger pointed to the Federal HousingrnAdministration’s 203(k) program as a vehicle that can help homebuyers takernadvantage of buying an older home. rnAvailable only to owner-occupants, the program can be used to financernthe purchase, rehabilitation, or upgrade of an older home and permitsrnhomeowners to roll rehabilitation costs into a refinance.  </p

Longtime homeowners who live inrnolder homes can use the 203(k) program to refinance at a lower rate. rnEight states have more than 100,000 homeowners who are estimated to be up to 10rnpercent underwater on their mortgages, Adger noted.  With modest increasesrnin home values these homeowners should be able to refinance.  These homeownersrnmay not be aware that they can refinance with a 203(k) loan even if their homernneeds major upgrades, as long as they have 5 percent equity and are not inrndefault.

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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