This Property Type Has More Competition Among Home Buyers Than Single-Family Homes Right Now
As the real estate market cools down, townhouses have become the most sought-after property type.
Throughout much of 2022, a high percentage of home sellers were seeing bidding wars. Many sold their homes for significantly higher than asking price, and some buyers—eager to seal the deal—even waived contingencies, such as having home inspections completed for properties. However, according to Redfin, the housing market is now cooling and has dropped to a 15-month low as of May.
One type of home is still subject to considerable competition, though. Redfin reports that 3 percent more of its customers’ offers face bidding wars on townhouse purchases compared to offers on single-family homes (64.6 percent versus 61.6 percent, to be exact). Read on to learn why townhomes might appeal more to buyers than single-family homes right now.
High Home Prices
While housing market competition may be decreasing to some degree, home prices remain high. In most areas, the cost of a single-family home is significantly greater than the cost of most townhouses. Because of these high prices, many buyers can’t afford single-family homes. Even among those who can technically afford a single-family home, they may prefer the idea of having lower mortgage payments for a townhouse.
Rising Mortgage Rates
During the height of the pandemic, interest rates were at near-record lows to help minimize real estate’s impact on the economy. However, with surging home prices and inflation, the Federal Reserve has made substantial rate increases in recent months. Currently, interest rates are more than 2.5 percentage points higher than they were a year ago. With increased rates come significantly higher monthly payments, potentially making less-expensive townhouses more attractive than single-family homes to buyers.
Homes aren’t the only necessity that are more expensive right now. A combination of factors, including the war in Ukraine and increased demand from consumers following the pandemic, has led to the highest inflation rate the U.S. has seen in about 40 years. Between inflation, rising mortgage rates, and high home prices, buyers are feeling the pressure and looking for opportunities to save money.
Higher Maintenance and Renovation Costs
Most single-family homes are larger than townhouses. They have larger roofs, more siding, and more land to maintain. As such, most townhomes have lower maintenance and renovation costs than single-family homes of a comparable age. Materials to renovate a smaller kitchen in a townhouse, for example, can be less expensive than those required to renovate a more spacious kitchen in a single-family home.
Inflation is causing price increases for nearly everything, and utility bills are no exception. Paying for electricity, gas, or oil for a large single-family home can get very expensive. With less square footage, most townhouses cost less to heat and cool throughout the year.
Less Need for Space
At the start of the pandemic, many Americans were spending a lot more time quarantining at home. Now that more people have returned to their workplaces and pre-pandemic living, they’re spending less time at home. Some buyers may feel they don’t need as much space as they did two years ago, making condos and townhouses a more practical option for them than traditional homes. When buyers are deciding between a townhouse and a condo, the (typically) higher homeowner’s association fees of condos may tip the scale in favor of a townhouse.