Smaller Homes are on the Rise

Mon, 10/21/2019 - 2:41pm

The average square footage of homes has been on the rise for a decade. We are seeing a shift in this as builders begin to cater more to the first-time homebuyer market. The U.S. Census Bureau reports show that the average new home size is now decreasing. According to Rob Chrisman, the average square footage has decreased slightly due the rise in first-time homebuyers and empty nesters and the rise in townhome and condo popularity.
Lew Sichelman of The Housing Scene describes this new trend in “The Shrinking House”. The average size of all completed single-family dwellings in 2018 was 2,588 square feet. But that figure is on a downward trajectory. In 2017, the average size was 2,631 square feet. Lew reports that builders are still building monster houses too. Last year, three out of every ten new houses were at least 3,000 square feet, and of those, 10 percent were at least 4,000 square feet, according to the U.S. Census Bureau.
This decrease in the average home size, as is all real estate, seems to be cyclical the National Association of Homes Builders (NAHB) Chief Economist Robert Dietz explains. “Typical new-home sizes fall prior to and during a recession, as homebuyers tighten budgets, and then rise as high-end buyers … return to the market in relatively greater proportions.”
For ten years we have reduced our construction of single-family and multifamily homes, but our population growth continues. The Nation’s Homebuilding Forecast panel at the National Association of Real Estate Editors Conference, explained that “this has been a crazy experiment. Builders are just now getting back into full swing years after the financial crisis.” There are intense constraints, including labor shortages, rigorous regulations, and more expensive building materials, placed on the builder market. With these pressures, builders are trying to navigate the waters to build what will sell profitably. The National Association of Home Builders (NAHB) believes their members will be adding more entry-level homes to their inventory, and potentially cutting square footage to reduce costs, which is indicative of the most recent reports.


Millennials are getting priced out of the market, yet prefer amenity-rich homes
There is a big demand for housing, a low supply of inventory, and the end result is artificially increased home prices due to the scarcity. This demand is causing starter-home buyers and lower-income families to be priced out of the market. The solution is to build more, build smaller, and build cheaper with fewer amenities. This is not exactly what the millennial buyer prefers over other generations as they continue to seek out more lifestyle features like whirlpool tubs and specialty rooms (exercise, media and game rooms).
I grew up in a three-bedroom, one-bath home with formica countertops, shag carpeting and wood paneling. No granite counters, tile floors, twelve-foot ceilings, or storage. And, I did not feel I missed out. We may need to bring this type of home product back or a reimagined version of it to create affordable homes for the first-time home buyer. A starter is just that, a start.
Certainly, the housing market will continue the trend to build smaller. The evidence is already pointing to this happening. We will also need to utilize land more efficiently opting for more multifamily development which we here in Austin, TX are certainly seeing.


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SOURCES:
Mortgage News Daily – http://www.mortgagenewsdaily.com/channels/pipelinepress/08132019-mortgage-rates.aspx
RobChrisman.com – https://www.robchrisman.com/aug-13-ops-cap-mkts-ae-lo-jobs-broker-dpa-products-aug-events-mortgage-rates-slow-to-drop-why/
UExpress – https://www.uexpress.com/housing-scene/2019/8/9/the-slowly-shrinking-house
The National Association of Home Builders – https://www.nahb.org/
The National Associations of Home Builders – http://eyeonhousing.org/2019/08/homebuyer-preferences-millennials-vs-other-generations/
Worldometers – https://www.worldometers.info/world-population/