Eye On Housing
Size trends of typical newly built single-family homes posted a small decline from the end of 2015 to the first quarter of 2016. The current data is consistent with an end of the shift to the high-end of the housing market, a pattern that took hold during 2014. As builders develop more homes for entry-level buyers, typical home size is expected to trend lower.
According to first quarter 2016 data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis, median single-family square floor area ticked up from 2,442 in the fourth quarter of 2015 to 2,463 square feet at the start of 2016. Average (mean) square footage for new single-family homes fell from 2,674 to 2,657 square feet for the first quarter.
On a less volatile one-year moving average, the recent trend of leveling (with small 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 has increased more than 12% to 2,671 square feet, while the median size has increased 17% to 2,456 square feet. These measures are off cycle highs.
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 cut back, and then sizes rise as high-end homebuyers, who face fewer credit constraints, return to the housing market in relatively greater proportions. This pattern has been exacerbated in the last two years due to market weakness among first-time homebuyers. But recent leveling, with small declines, indicate that this part of the cycle has ended and size should trend lower as builders add more entry-level homes into the marketplace.
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.
I too expect the market to return to historic trends except that regulatory costs continue to increase at a higher rate than inflation, making new entry level single family all but impossible in many markets.