Why You Should Not Buy an Expensive House

Here’s a new factor to consider when deciding how big of a house to buy: your return on the investment.

Starter homes have been increasing in value at a faster pace than more expensive homes, according to a recent analysis by Zillow.

For this study, the real estate data website divided U.S. housing stock into equal thirds based on home values and calculated the median value of the most and least expensive homes. The findings show that the values of the most affordable homes increased by:

• 8.5 percent over the past year, compared with 3.6 percent for the most expensive homes.
• 44.4 percent over the past five years, compared with 26.6 percent for the most expensive homes.

Zillow pegs the trend to the rising demand for entry-level homes. The website describes the supply of the most affordable homes as “extremely limited,” noting there are almost 18 percent fewer starter homes available today compared with just one year ago.

Zillow senior economist Aaron Terrazas traces the trend back to the end of the past housing bubble:

“When the housing market crashed, owners of the least valuable homes were especially hard hit, and lost more home value than homeowners at the upper end of the market. Since then, though, demand for less expensive, entry-level homes has built steadily, causing prices to grow rapidly. As a result, these homeowners have been able to build wealth at a faster pace than owners of more expensive homes.”

Among the nation’s large real estate markets, only three have seen the values of the most expensive homes increase faster than those of entry-level homes. These markets, all generally known to be relatively expensive, are:

• San Francisco
• San Jose, California
• Seattle

This trend toward affordable houses gaining value faster underscores the argument against buying more house than you can afford. As Money Talks News founder Stacy Johnson details in “Stop and Think: How Much House Can You Really Afford?“:

“No matter how good the deal or strong the desire, buying anything you can’t afford is traveling down the road to ruin.”

So, what do you make of this news? What’s your take on the best size of home to buy? Share your thoughts with us by commenting below or over on our Facebook page.