As the housing downturn intensified, many builders changed their product mix to focus on smaller, less expensive, and more energy-efficient homes. Some of the most successful new-home communities in 2010 catered to first-time home buyers at value-oriented price points that featured more efficient homes. While it can be argued that energy efficiency will continue to be important, many facts point to the conclusion that the trend toward smaller and less expensive homes won’t be permanent. Historically there has been a decline in the size of new homes completed in every recession since the Census has been tracking the sizes of newly completed homes (1973). History suggests that as the economy recovers, new homes will trend larger.
Further, the facts suggest that the declines in size and price are less a reflection of a rise in austerity by households but rather that a substantial change has occurred in the type of households buying new homes. Comparing 2009 to 2007, there was a dramatic shift in the households that bought new homes, with the middle- to upper-income family households giving up share to much younger and lower-income groups.
While this represents the market in 2009–2010, this is not the normal distribution of households that buy new homes. As markets recover, expect the family, elite, and higher-income groups to return, and thus the size and price of new homes will also trend higher.
Smaller Homes For Lower Incomes
According to Hanley Wood Market Intelligence data, the average square footage of a new home closed in 2010 was 2,118, which was a decline of 4.2% from the average of 2,212 recorded in 2007. Similarly, the average income of the new-home buyer in 2010 was $66,770, which was a decline of 8.5%.