Let’s face it: We’re not technically in a recession, but it sure feels like one.
Right after COVID hit, consumers were enjoying historically low-interest rates and “pandemic prices” across the board. Now, things have shifted. Gas prices are on the rise, interest rates are going up, and the stock market is in a slump.
The real estate market is no different. Call it what you want — a cooling off, a slowdown, or simply the end of an era — but the purchasing power that homebuyers once had has weakened, especially in the luxury market.
However, all is not lost for those who want to stake their claim in the U.S. housing market right now. After all, isn’t one of the best features of working in real estate that every individual must live in a suitable home, regardless of fluctuating market conditions?
There’s still incredible opportunity out there. You just have to know where to look.
Luckily, we’ve pinpointed the hottest sector in real estate at the moment. And we’d love to tell you all about it.
Mid-Size Homes: The Hottest Sector in a Cooling Market
A mid-size home is, quite simply, a property that’s larger than a starter home but smaller than a luxury home. In most markets, this would be considered a home between 1,750 and 3,000 square feet. In recent months, this footprint has become the hottest sector in real estate, with more buyers clamoring to get their hands on one.
The data bears this out: Mid-size homes make up over 35% of the market share while homes between 750 to 1,750 square feet make up over 40% of the pie. Together, homes that range from 750 to 3,000 square feet currently make up approximately 80% of the total listing inventory. Not only that, but they’re showing significant net growth in listings volume when compared to the same period last year.
There are two main reasons why smaller to mid-size homes are leading the charge in selling inventory during an inflationary downtown, as is now:
1) Higher Interest Rates
With interest rates doubling over the past six months, from 3% to 6%, buyers have lost roughly $100,000 in property affordability. That’s a lot of money, especially when you’re trying to purchase a luxury home. This is no longer an option for many buyers, who are now forced to reconsider their budget and look for a more affordable property.
Here are some numbers to show you what we mean:
Six months ago, a home valued at $400,000 with a 3% interest rate and 20% down payment would have cost approximately $1,300 in monthly mortgage payments on average. By contrast, today’s 6% interest rate may only afford you a $300,000 home — that’s a $100,000 drop in value.
The workaround? Buyers are willing to purchase a smaller, more affordable home in the locations they love and put any leftover cash into savings or investments. The trade-off is worth it to them, especially if they get to live in neighborhoods where they can easily commute to work, enjoy the schools, and be close to local amenities.
2) Rising Inflation
Before inflation hit its highest level in 40 years last January, the monthly cost of heating, cooling, and maintaining a 3,000-square-foot home may not have been top-of-mind for many buyers. In other words, it was easy to gloss over these expected costs when you could afford the mortgage payments with ease.
But now that gas, food, and other essential costs are on the rise, buyers are looking to save wherever they can, and a smaller home is one way to do that.
Smaller homes have a smaller overhead. From a financial perspective, it just makes sense to purchase a mid-size home during an inflationary market. Doing so can help you free up cash that can be used for other purposes, like investing or saving for a rainy day.
All of this points to one thing: if you’re in the market for a new home and looking for the best value, a mid-size home is the way to go.
Finding the Right Mid-Size Home
Your home is one of the most important financial assets you’ll ever own, so it’s crucial to find one that perfectly meets your needs no matter what the market conditions are.
The key is to figure out how to find these “mid-size” opportunities and pursue them before your resources run dry. You need to know where to look and you need to be prepared to move fast when you find a property that’s right for you.
Here are some tips to help you get started:
If You’re a Home Buyer or Investor …
To find the best mid-size homes, it’s important to work with a qualified real estate agent who has experience in your specific market. With their help, you can be sure that you’re getting the best possible value for your money.
Additionally, you might consider a smaller home if the location and neighborhood amenities are what you’re looking for, even if it means compromising on square footage.
If You’re a Home Seller …
If you’re selling a mid-size home, it’s important to price your home competitively. In today’s market, buyers are looking for the best value for their money. If you’re not priced competitively, they’ll simply move on to the next listing.
As a seller, it’s also important to make a great first impression. This means ensuring that your home is in tip-top shape before listing it on the market. From decluttering to deep cleaning, there are several things you can do to make your home more appealing to buyers.
If You’re a Real Estate Agent …
If you’re a real estate agent or investor, your marketing game needs to be on point. You need to be able to reach buyers where they are and show them why your listings are the best possible option for their needs.
One of the most effective ways to do this is to find a skilled real estate photographer near you and offer them to your new clients with every listing appointment you set.
If you have the right market focus and the best real estate photographer on your team, there’s no reason why you can’t make a killing in today’s market — no matter what the conditions are.
To find a professional real estate photographer in your local area and across the nation, visit our homepage.