I bought a 2 bedroom 1 bath short sale in Minnesota two years ago. My opinion is that there is always a market for "starter homes" read: the most affordable single family homes available. Even if a family doesn't want to live in a 2 bedroom 1 bath, a single person surely would. I am also able to pay down more extra principal as I am able earlier in the mortgage, which in the event I want to sell and upgrade, I have more flexibility than the person moving up from a $200,000 house to a $300,000. In fact, after two years of owning my house, I have enough equity to put 20% down on a $300,000 home (the short sale situation was a big factor in this). Another consideration is that if you are planning on "moving up" in the future, your realtor fees will be way less than said person with a $200,000 house. Win win!