As I was walking to my neighborhood park today, I came across a new tract housing development that's being built in my area. Are we in the early beginnings of a housing recovery? Recently, I've seen many homebuilders start developing in Las Vegas again. They must have seen improvement in their business after years of distress. Are we coming out of the recession in the real estate market? Should people start buying tract homes again? I personally dislike tract homes. I've bought and lived in a tract home community before. What I've experienced is that tract homes can be boring and uninspiring to look at over time. It seems that my neighborhood was growing outdated as the builders continue to develop newer and better model homes. Tract homes, in my opinion, aren't built to last for 100 years and it's not something the homeowners would keep and pass on to their children and grandchildren. When your tract homes is outdated, you can't make improvements to the exterior of the house or additions to the home, especially if it's in a community that being managed by HOA's and their CC&R's (covenants, conditions and restrictions).
Tract homes, in my opinion, are cheap and ugly looking houses. Some look like monopoly houses with tiny windows and are like cardboard boxes, especially the ones in Las Vegas. They all look the same with similar style and color, with no special characteristics or individuality about them. The floor plans are fairly identical with about the same square footage. The appliances (if included) are as cheap as they come. Carpets and countertops are of basic qualities. Tract homes are mass produced and builders have foregone quality over quantity. Builders tended to use low-grade materials in their construction (i.e. vinyl sidings, asphalt shingles). Over time, the materials will deteriorate at a faster rate, leading to costly repairs. Many homeowners who can't afford the repairs and/or upgrades will skip the unnecessary upkeep, thus leading to overall neighborhood bleakness.
In North America tract homes were first mass produced in Levittown, NY. in 1947 by a building firm called Levitt & Sons., and that's how Levittown got its name. They targeted lower income and middle class people, who wish to invest in the real estate market. Many are first time home buyers, wishing to buy their very own piece of the American dream. But when there are signs of housing trouble, tract homes can depreciate at a faster rate than other types of homes and they tend to fall out of favor quickly. I don't think tract homes will have a great resale value in the long run. I don't think it's the right kind of home that you would want to buy and pass down to your children and grandchildren. People's preferences in housing styles differ every generation, people's tastes and ideas gradually change over time. Due to strict HOA regulations and covenant restrictions, you can't reconstruct your tract home to suit your ever-changing tastes. And when you need to sell your home, it is more difficult to find a buyer. New buyers are also looking for better, up-to-date, newer models. And that can lead to a housing recession. And this cycle tends to happen over and over again.
Because of their poor building design and the quality of the materials that are used on tract home, I can't imagine the homes will outlast the life of the loan without undergoing some major repairs and upgrades. Some tract home communities that were built over 10-20 years old ago can start to see some structural damage (cracks in the stucco, peeling paint, water damage in walls due to leaking pipes, broken roof shingles, etc) Stucco is a great building material for in warm and dry areas, but they crack easily even with the slightest stress. Another important issue of living in a community of tract homes is that not everyone has the same standard as far as cleanliness and basic upkeep of their property. Not everyone has the same financial flexibility to address their home repairs. Some might fix the problem right away while others may let the problems persist. And that will eventually cause property values in the neighborhood to drop over time.
I believe tract homes are bad investments because their quality and appearance can deteriorate faster than custom homes. And that would lead to less demand from buyer in case you need to sell your home. If you still want to purchase tract home then I think you need to be more selective of who the builder is. Cause some tract home are poorly designed, even their appearance look like oversized cardboard boxes with cut out windows. In the future I hope home builders would make tract homes more appealing by having better architectural design and using top of the line products. As of now, tract homes lack the character and charisma as it get older. And it'll get outdated quick. So I would rather rent if I can't buy a nice custom home for myself. And I don't want to have to go through trying to sell another tract home to someone else again.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.