Spurred by low interest rates and attractive prices, home buyers buying bigger homes
By RE/MAX Northern Illinois
CHICAGO — The small-home trend seems to be waning. A growing number of today’s home buyers are choosing to buy the largest home they can afford, according to agents with RE/MAX Northern Illinois.
The reason? RE/MAX agents point to affordable home prices and low interest rates, two factors that make larger homes easier for more buyers to afford.
“Interest rates are so low, and home prices are low, too,” said Ellen Silverman, a broker with RE/MAX Vision 212 in Chicago. “With interest rates at their current level, it’s almost like buying a home at half price.”
Buying a larger home — if it fits in a buyer’s budget — can be a sound financial move, Silverman pointed out.
“It might be more house than a buyer needs today, but there may be a time in the not-too-distant future when it won’t be,” she said. “Borrowing at 4 or 5 percent and getting that big home today is a value when compared to buying a smaller home and then selling it a few years down the road, so you can purchase something bigger. By then, interest rates may be considerably higher.”
Silverman’s view is supported by data from the U.S. Census Bureau. In 2012, homes of 2,400 square feet or more accounted for 45 percent of all new single-family homes built. Homes of that size represented only 40 percent of new homes in 2010.
This trend may not change any time soon. According to Freddie Mac’s Primary Mortgage Market Survey, the average interest rate on a 30-year fixed-rate mortgage loan stood at 4.35 percent as of Nov. 14. That rate was even lower on a 15-year fixed-rate mortgage, coming in at an average of 3.35 percent.
Although the median sales price of existing homes is rising, prices are still low when compared to the busiest days of the residential real estate boom. The median sales price of an existing home sold in October in the seven-county Chicago region was $176,000. That’s up 15 percent from the same month one year earlier when the median sales price was $153,000, but it is still 28 percent lower than the median sales price for the same area in October 2006.
Tyler Fuhr, an agent with RE/MAX Blackhawk Valley in Andalusia, Ill., reported that even first-time buyers in the Quad Cities market he serves are taking advantage of these low interest rates and prices to buy larger homes. It’s an alternative to the traditional home-buying path in which first-time buyers would purchase a small home, live in it for five to seven years, sell it, and find a home with more square footage as their family became larger.
“Today, buyers are looking for homes they can live in for years to come, instead of having to move in five years,” Fuhr said. “They don’t want to go through that moving experience again, if possible, and with the low interest rates, they can get into the larger house that in the past they would have had to wait five or seven years to afford.”
Fuhr pointed to his own market as proof. In the last two to three years, he said, it has become more difficult to sell traditional starter homes, residences that in the Quad Cities area generally list for $80,000 to $100,000. With interest rates low, many of the buyers who would have purchased such homes instead chose homes that cost $140,000 to $180,000.
“That’s quite a step up for first-time buyers, but it’s possible because of the interest rates,” he said.
Buyers should consider several factors when determining which home size is right for them. Those include the number of current household members and the number of children who might be added.
The home-size decision, however, isn’t always easy to make, said Eric Egeland of RE/MAX Suburban in Libertyville, Ill. Many homes appear larger on paper than they feel in real life, he noted. That’s because large homes may have space that families can’t use.
“I try not to have the buyers focus on the actual square footage,” Egeland said. “Certain homes have the square footage, but they also have a lot of wasted space, space that doesn’t work for the residents. For me, I try to get a feel for how many bedrooms they want, how many living areas they want. I start there, rather than having my buyers focus on square footage.”
While square footage matters when it comes time to sell a home, how that square footage is used is usually more important, Egeland said. It is easier to sell a home with three bedrooms than one that has more square footage but just two bedrooms, he said.
“If you are talking about the Chicago-area market, you probably want to focus on the number of bedrooms,” Egeland said. “Most people want one additional bedroom above and beyond the number of occupants that will actually be sleeping in the house. A family with a husband, wife and two kids will probably want four bedrooms. They’ll want one for each child, one for themselves, and that extra bedroom for a guest or an office.”
Fuhr also reminds buyers that while a larger home might give them and their family members the extra space they want, it might also come with larger expenses.
“The bigger the home, the more expensive everything else will be,” Fuhr said. “The utility bills will be higher. Replacing the windows or siding will cost more. Everything will cost more. You have to keep that in mind and set aside some money for the costs that will come up.”
From the Jan. 1-6, 2014, issue