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Are Small Homes Big Now?

There has been a growing trend of smaller, less expensive homes appreciating faster than larger, costlier homes. In a culture that values the ostentatious display of wealth, it may seem counter-culture to accept that idea. What are some reasons that someone would opt for buying a smaller home, rather than a larger one?

Our Place In Time – One of the key demographics during this time is the coming wave of retirement for baby boomers. This group of individuals are starting to retire, and at the very least showing signs of empty-nest syndrome. Along with that will come thoughts of downsizing the homestead and moving to different areas friendly to the elderly or those in retirement. For them, a large McMansion is simply not what they need or want at this time, even if they have the money to buy it.

The Tighter Lending Climate – As banks tightened their requirements for borrowers, some people can no longer qualify for the larger mortgage loans necessary to buy a larger home. Many people have heard of the dangers of adjustable rate mortgages (ARM) and are opting for fixed rate mortgages. Fixed rate mortgages can limit the purchasing power based on the formulas lenders used to calculate a fixed rate mortgage, when compared to adjustable rate mortgage packages. It will mean borrowers qualify to buy less home, instead of more. Add to that the fact that borrowers are being forced into at least a 10%, sometimes 20%, down payment to qualify for a mortgage, and the less expensive and smaller homes become more attractive to buyers.

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