New-Home Sizes Are Starting to Shrink

DAILY REAL ESTATE NEWS | WEDNESDAY, AUGUST 19, 2015

The median size of U.S. homes dropped slightly in the second quarter, edging back from a record set in the previous quarter, the Commerce Department reported Tuesday.

Patience Pays: Building New Brings Longer Waits

In the second quarter, the median size of a new home was 2,479 square feet – about 40 square feet smaller than the record high set in the first quarter.

The smaller size may be a sign that builders are starting to focus on building more entry-level homes,The Wall Street Journal reports. The National Association of Home Builders has predicted that first-time home buyers, who most often purchase entry-level homes, will comprise 18 percent of new-home sales this year, up from 16 percent last year. Still, that is far short of the 25 percent to 27 percent share of buyers that first-time home buyers comprised in the market from 2001 to 2005. At that time, the median size of new homes ranged from 2,051 to 2,263 square feet.

But anticipating the return of first-time buyers, some builders have announced efforts to focus on the entry-level market. For example, Meritage and D.R. Horton have launched divisions to build starter homes.

In the quarter ended June 30, D.R. Horton completed sales of 1,577 of its Express starter homes, which average 2,000 square feet and cost $188,000. Meritage has announced plans to expand into the entry-level market, which now accounts for 20 percent to 25 percent of its sales. Chief Executive Steven Hilton says he wants the entry-level share to rise to 35 percent in the coming years.

David Crowe, chief economist with the National Association of Home Builders, predicts that the median size of new-homes will continue to shrink over the coming years as more first-time buyers enter the market. Still, it may take a long time for the national median-size figure to reflect the trend further.

“It probably will take the rest of this year and next year before the first-time buyer share is sufficient to affect the median size of all new homes in a sustained manner,” Crowe told The Wall Street Journal.

Source: “Size of New Homes in U.S. Shrinks By One Closet,” The Wall Street Journal (Aug. 18, 2015)