If you are in the market for a new home, you have probably noticed that almost all the houses in your local listings are anything but new. According to a recent survey from research firm RealtyTrac, 71 percent of U.S. single-family homes were built before 1990. In some states, particularly in the Northeast, pre-1990 houses make up 80 percent of recent sales.
Experts say the new-home drought is mainly due to a hangover from the real estate bust. Homebuilding, which practically came to a halt five years ago, has been slow to restart as big developers have remained skittish. New-home construction this year is still 40 percent below normal long-term levels, says Jed Kolko, chief economist at real estate website Trulia.com. Furthermore, builders have focused on multifamily homes, and individual buyers have not had access to all the new single-family houses coming to market.
"Wall Street-backed money has scooped up newer homes to use as rental properties," said Daren Blomquist, vice president of RealtyTrac. "That's pushed the already-low new-home inventory down to record levels."
Sara Winter and her husband had to scratch a new home off their list when they searched for their first house in the New Jersey suburbs last year. Still, the couple found it an easy tradeoff. "In the areas we were looking, it's either very old or brand new, and the new would cost hundreds of thousands more," says Winter, who in June moved into a Scotch Plains, N.J., house built in 1953. "We were willing to do some updating, and older homes have charm."
According to RealtyTrac, the average pre-1990 home recently sold for 9 percent less than a newer one in the same market. In areas like Cleveland, Pittsburgh and Detroit, where there are big supplies of older homes, the differences were even more marked: These houses cost less than half what newer ones fetch.
The age of the home and its location factor into its price, too. Pre-1940 houses tend to be ample in size and often have features buyers associate with old-world charm, such as sweeping staircases, exposed brick and crown molding. Particularly in gentrified areas of large cities such as Boston and Houston, homes built in the early 1900s often command a premium to more contemporary ones, notes Kolko. By contrast, postwar-era homes tend to have cookie-cutter designs and features that have gone out of fashion. And the average house built in the 1940s lacks closet space and is nearly 50 percent smaller than today's typical new home.
Rehab Isn't Free: If you are willing to do some major layout rehab on an older place, you may get a great bang for your buck. But remember that this will raise your cost of ownership and that older houses tend to be more expensive to own anyway. Total first-year costs of homeownership, consisting mainly of line items like fuel and maintenance but excluding mortgage payments, are 23 percent lower for new homes than for those built before 1960, according to a study by the National Association of Homebuilders.
"That's assuming you don't have to make any major fixes," says study author Paul Emrath, the association's vice president of survey and housing policy research. Even a minor remodel on an older kitchen, including cabinet refacing, countertops and mid-range appliances, costs an average of $18,000, according to Remodeling magazine.
If you are in the market for an older abode, here are a few guidelines to follow:
Know when to walk away. Signs of water damage or mold in the basement? Pass on the place, says Michael Corbett, Trulia's real estate expert and author of "Before You Buy," a handbook for home shoppers. "Make sure things are dry as a bone and are going to stay that way," he says. Termites and structural issues, such as cracks in the foundation, are also extremely costly to fix.
Do the walk-through with your inspector. Many buyers hang back during the inspection. Big mistake, says Corbett. "It's like going to the doctor and not being present during the examination," he says. "This is your only real chance to find out what the house is about." Besides bringing any red flags to your attention, the inspector should be able to give you a ballpark figure for what it will cost to tackle more minor repairs.
Budget for energy-efficient upgrades. Fuel costs represent a large share of the extra expenses of an older home, says Emrath. Investments in new insulation and an energy-efficient furnace or air-conditioning unit will pay for themselves and then some in the long run.
Plan for a few big expenses. Even a 10-year old home is probably going to need some modifications, like new appliances or carpeting. But if you buy a home that was built more than two decades ago, you are probably looking at costly fixes such as new heating and cooling systems, plumbing and a roof in the near future, if not immediately.
"These kind of repairs are usually baked into the purchase price," says Corbett, "It's a question of whether a buyer is willing to take them on."
The author is a Reuters contributor. The opinions expressed are her own.
SIZABLE HOMES IN SMALLER MARKETS, FOR UNDER $100,000:
The small town of Rock Island, Ill., is part of the Quad Cities about 175 miles west of Chicago, has a population of about 39,000. There’s a wide variety of housing available in Rock Island including historic homes, downtown condos, new construction in the heart of the city, and wooded retreats. And the prices vary, from a $1.45 million "House on the Hill" overlooking the Rock River Valley, to this three-bedroom, three-bath one pictured for under $100,000.
List Price: $99,900 - The brick "Magill House" at 2,253-square-feet is a registered historic home. Built in 1868 in the Italianate style, it was revived in 1992 with updates and additional improvements. There is a beautiful, winding wood staircase, hardwood floors on the main level, a master bath, a breakfast nook, built-ins, and heated three-car garage.
Spokane, home of the 1974 World's Fair, sits in the county seat of the same name. With just more than 200,000 residents, it is second largest city in the state of Washington but still small enough to rank low among major cities, giving residents the best of both worlds.
List Price: $99,500 - This updated Craftsman on the north side of town is nestled on the corner of a tree-lined street in a quiet neighborhood, according to its listing. At 3,054 square feet, this four-bedroom home is bigger than it might first appear and even has two rental units on site.
List Price: $118,840 - This three-story brick, historic federal-style farmhouse with a Dutch roof has been restored. It has six bedrooms, three baths, hardwood floors, and a front and a rear stairway. There are two cement patios, and one of them is fenced.
Omaha is the largest city in Nebraska, but is No. 42 on the list of largest U.S. cities, behind Mesa, Ariz., and Virginia Beach, Va. The city is also home to one of the wealthiest men in the world, Warren Buffet, who lives in one of the most modest homes for his status, as HuffPost Home has reported. The Wizard of Omaha has said "a house can be a nightmare if the buyer's eyes are bigger than his wallet."
List Price: $100,000 - One of the smallest on our list, this 1,025-square-foot single-family home (pictured) has three bedrooms and two bathrooms. Built in 1964 it has a tuck-under garage. However, we can't guarantee that if you buy it, you'll also gain even a quarter of Buffett's wealth.
Mobile goes by the slogan "secretly awesome," according to its tourism website, and is near Pensacola, Fla. It was also recently ranked No. 2 in U.S. metro cities with the highest economic growth potential by Business Facilities magazine, coming in behind Baton Rouge, La.
List Price: $69,900 - At 2,300-square-feet, this four-bedroom home has so much space for the money. The large living room leads to the family room with a gas-log fireplace. Its family room opens up to the kitchen and dining area, according to the listing. Out back, a patio leads to a guest apartment, which has a full bath and a kitchenette.
Louisville is home to the Kentucky Derby and the Muhammad Ali Center. The city also recently noted on its website that it has regained all 42,000 jobs that were lost during the recession. Louisville is outperforming several peer metro areas in post-recession job growth. Among the 100 most populated metro areas, the Louisville metro area ranked 26th in recovering from the recession, according to the Brookings Institution's Metro Monitor.
List Price: $100,000 - With three bedrooms, two full baths and hardwood floors, this pictured home has a large living room that goes across the whole front of the house. There is also a two-sided staircase, and a full bath on each floor. "The large backyard is perfect for family gatherings," says the listing.
Ranked at number 12 among the DMAs, it is hard to call Indianapolis a small town, but this Midwestern city about a two-hour drive from the Chicago metro area does have a small city feel, in comparison.
List Price: $100,000 - With 3 bedrooms and 2,635 square feet, this home is a bargain for a city of its size. Built in 1922, it has a covered porch, hardwood floors and stairs.