Tiny Homes and their Effect on Real Estate Market

Tiny Homes and their Effect on Real Estate Market

Tiny Homes are gaining in popularity. For both old and young adults, this market is predicted to grow by about 30% by 2022, according to BusinessWire. Even the sage investor Warren Buffett is bullish on mobile homes.

white RV trailer behind green leafed tree
What usually comes to mind.

Which is what a tiny home really is- a smaller mobile home that is designed to look like a luxury house. If you think about it, all tiny homes are doing is taking the stigma away from owning a mobile home by making it look nice and rebranding the concept. Brilliant.

tiny-home

But the increase in demand in these "properties" pose an interesting question as to its effect on traditional residential real estate.

One might think that the purchase of tiny homes would bring down the price of regular homes. But while there may be a contingent of those with plenty of money and no desire for the full home ownership experience, the markets are not really the same. A large majority of people would rather have that experience and the space for a family, eventually.

So what value proposition does a tiny home offer? For older people it is a low maintenance option for living. As most wealth is possessed by the Baby Boomers, as well as the Baby Boomers being on their way out, the impact of older people and tiny homes should be contained.

So where do tiny homes fit in the life of a young adult?

If you think of tiny homes as the same real estate investment dynamic as those building equity in traditionally-sized homes, what it does is extend the participation in this activity to those with less disposable income, and thus lower credit limits.

In the life of most young working adults, with or without student loans, owning their own homes is not a reality. While most understand the life of seemingly starting all over again at the parents' house, the tiny home offers an intriguing possibility.

To start, college graduates and other young adults can take out a "tiny mortgage" of $16,000 or so and find a plot of public land or mobile park. From hence, they've conserved their independence, some sense of life progress, and started their journey at the lowest rung of real estate.

boy standing on ladder reaching for the clouds
Photo by Samuel Zeller / Unsplash

And when they get promoted at their work and the time comes to get a "real" house, it will mean a little extra bump in what they can afford when they flip the tiny home. Indeed, the refusal of land developers to have affordable homes built will allow stylish mobile homes to take their place to a certain degree.

The opportunity that tiny homes extends to younger people is that they could get more value than if they just stayed at their parents, as nothing builds credit like a paid off mortgage. As a result, you have younger people being more equipped to enter the traditional residential real estate market in an earlier timeframe.

The Journey is On LED signage
No more stymied future.

The woes of the housing market being affected by student loans is well documented, and tiny homes could provide the boost necessary to bring back some of the younger cohort of the home ownership market.

In the short term, there should not be any impact on traditional home prices. In the long term, providing more young people the ability to get out on their own would definitely provide a bump in real estate prices in the below $250,000 market.