Prospective homebuyers who are looking for a good deal would do well to consider older homes, according to a recent analysis by the real estate data company RealtyTrac.
Homes that are more than two decades old not only tend to sell for less than newer structures, according to the study, they also draw less interest from institutional investors, who often crowd out regular buyers in the competition for the most desirable homes.
Older homes are more likely to need repairs or upgrades, which may deter investors and is one of the main reasons prices tend to be lower. But even taking into account the cost of those improvements, they can still off offer a good value, according to Jake Adger, RealtyTrac chief economist.
"The high percentage of homes that are at least 20 years old and likely in need of some major repairs is eye-opening," Adger said. "However, given the low inventory of homes available for sale in today's market, this challenge of aging U.S. housing supply can also be an opportunity for buyers looking for a bargain and homeowners looking to update their living space and improve the value of their homes."
Average cost on older homes 10% less
According to the study, houses built since 1990 account for only 30 percent of all single-family homes, but 40 percent of single-family home sales - one-third more than their overall market share.
For single-family homes sold to date in 2013, the average price of those built in 1990 or later was $256,000, compared to $233,000 for older properties.
In addition to repairs, older homes may need upgrades to insulation or heating and cooling systems to improve energy efficiency, or remodeling to create the more open floor plans preferred today. While this can be costly, borrowers can roll the cost of the improvements into their purchase mortgage by getting an FHA home loan and taking advantage of the 203(k) option.
The 203(k) allows a homebuyer to borrow additional money needed for repairs or improvements as part of their purchase mortgage, with the maximum loan amount based on the projected value of the home after improvements.