With the end of 2016 approaching, NAHB’s Eye on Housing is reviewing the posts that attracted the most readers over the last year. In November, we examined the turnaround in new home size that marks a broadening of home building inventory.
After increasing and leveling off in recent years, new single-family home size continued to trend lower during the third quarter of 2016. This ongoing change marks a reversal of the trend that had been in place as builders focused on the higher end of the market during the recovery. As the entry-level market expands, including growth for townhouses, typical new home size is expected to decline.
According to third quarter 2016 data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis, median single-family square floor area was effectively unchanged at 2,402 square feet for the third quarter. Average (mean) square footage for new single-family homes fell from 2,620 to 2,602 square feet.
On a less volatile one-year moving average, the recent trend of declines in new home size can be see on the graph above, although current readings remain elevated. Since cycle lows (and on a one-year moving average basis), the average size of new single-family homes is 11% higher at 2,639 square feet, while the median size is 15% higher at 2,424 square feet.
The post-recession increase in single-family home size is consistent with the historical pattern coming out of recessions. Typical new home size falls prior to and during a recession as some home buyers tighten budgets, and then sizes rise as high-end homebuyers, who face fewer credit constraints, return to the housing market in relatively greater proportions. This pattern was exacerbated during the current business cycle due to market weakness among first-time homebuyers. But the recent small declines in size indicate that this part of the cycle has ended and size should trend lower as builders add more entry-level homes into inventory.
In contrast to single-family patterns, new multifamily apartment size is down compared to the pre-recession period. This is due to the weak for-sale multifamily market and strength for rental demand.