Median Home Size Getting Smaller – Could This Attract More First Time Buyers to the Market?

January 1, 2015

The typical size of homes in the U.S. is getting smaller – a sign that more budget-consious buyers are entering the market, including first timers. While the median size of a single-family home has been decreasing consecutively for the past two quarters, the latest data from the National Association of Home Builders (NAHB) show the current figure of 2,414 square feet as the smallest size since the fourth quarter of 2012.

But what is the underlying reason for this steady decline in median home size? According to the NAHB, economic conditions play a huge role.

“Typical home size falls prior to and during a recession as some home buyers cut back, and then sizes rise as high-end home buyers – who face fewer credit constraints – return to the housing makret in relatively greater proportions,” NAHB published on its blog, Eye on Housing. “This pattern has been exacerbated in the last two years due to market weakness among first-time buyers.”

Despite a noticeable absence of first-time buyers in the market recently, the change in median home size could indicate that entry-level buyers are coming back. After all, new construction typically provides the market with whatever there seems to be a high demand for, and right now it seems there is a big demand for small homes. However, demand shouldn’t be confused with preference.

Rober Dietz, an economist with NAHB, told The Wall Street Journal that the drop in square footage isn’t necessarily a fair reflection of what home buyers actually want. Rather, it is a reflection of who is buying new single-family homes.

According to a recent article from RealtorMag, an online publication of the National Association of Realtors, “…building giant D.R. Horton Inc. posted a 38 percent surge in sales orders in the fourth quarter, attributing most of those gains to its new Express brand homes that are priced at $200,000 or less.”

On the other hand, a different trend among American home buyers has actually caused the median home size to increase over the last 40 years. According to another RealtorMag article, homes went from a median 1,525 square feet in 1973 to 2,491 square feet in 2013. The reason behind this change is thought to be the multigenerational housing trend. In other words, more than one generation of a family living under the same roof. And what’s causing this trend? Here are a few theories:

  1. Aging adults are moving in with their grown children to avoid going into nursing care, to help out with raising grandchildren, or because living on their own wouldn’t be financially feasible.
  2. Young adults are delaying moving out on their own due to financial instability or the desire to wait until they can afford to buy a house rather than rent.
  3. Both older and younger adults are choosing to move into their adult children’s or parents’ homes due to a life changing event such as the death of or divorce from their spouse.

In response to these changes in housholds, builders have been launching home designs that target multigenerational home owners. For example, Toll Brothers is now offering guest suites with a kitchen to better accommodate the needs of a multigenerational houshold. Lennar has also introduced a new brand of floorplans geared toward multigenerational living. The NextGen brand include separate main entrances and options such as a 500-square foot attached suite for a private residence.

So while median home sizes may have been dropping over the last few quarters, the actual figures point toward an overall increase in home size. Interestingly, another trend that has been on the sidelines of the housing industry is the microhousing fad or “tiny home movement.” Homes constructed to be no larger than 1,000 square feet have become a growing trend for people living in urban areas where space is at a premium, as well as for those who just want to live more simply. While this trend has yet to take the American real estate industry by storm, it is interesting to see how these trends change and fluctuate with the ever changing socio-economic environment.

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