As we’ve poured over listing after listing, looking for that ideal next home, I believe I have recognized a trend that once again places us in the minority. No surprise there. Unfortunately, this trend not only makes it harder to find a place we like, it also makes it harder for us to secure funding. Here’s why.
According to Susanka in “The Not so Big House“, there are three key components to designing a home: Quantity, Quality, and Cost. You can fix any two of them, but the third must be allowed to adjust. It appears to me that the U.S. housing market prefers to focus on Quantity and Cost, and to maximize those, Quality suffers. This appears to be the case on through about 3500 sqft and $500k, after which there are options where Quality and Quantity are fixed, and the cost increases. Unfortunately for us, we would prefer to sacrifice Quantity for Quality, and, as is the case for most people, we have access to a limited quantity of dollars. Finding a well built home with quality design, fixtures, mechanicals, cabinetry, and finish carpentry in our price range has proven difficult – not because such a house couldn’t be built for the price, but rather because the market is flooded with larger lower quality homes.
The second fallout of this priority inversion is that securing a loan to expand our own home or fix-up a new one is made more challenging. These loans, such as the 203k, are based on the future appraisal value of the home after the renovations. Just as quantity trumps quality in the available inventory, it also wins out in the appraisal (no surprise again). Adding on to a house achieves a higher appraisal-increase-per-dollar-spent ratio than does improving the quality of the home.
So where does that leave house-snobs like us? Well, I suppose it leaves us in the position of needing to save even longer to be able to renovate an existing home (either ours or another of suitable size and location) so that we can bring more capital to the table. Save more? Borrow less? That’s down right un-american. So… the minority… again… still.