How big should a home be? For homebuyers, picking a proper sized home that will meet the needs of daily life without surpassing a certain budget can be difficult. For builders, building a home that doesn’t sell well in the market—either because it’s too big, or because the size has caused buyers with smaller budgets to be priced out, is equally disastrous.

A great way to avoid making such a mistake is to probe what other builders in the industry are doing, and what types of homes buyers are actually purchasing. One great source for gauging the size of homes being built is the Census Bureau’s annual “Characteristics of New Single-Family Homes Completed” report, which compiles the average size of newly  completed single-family homes and lots. 

To offer insight on the average home and lot size being purchased by buyers, we've tapped Metrostudy to find out the average size of new homes/lots based only on closings.  This allows a direct comparison of the size of homes being built, vs. the size of homes being bought.

Data from Metrostudy and the Census Bureau both show that average home size has been on the rise following the recession, and has surpassed pre-recession levels since 2012.  The chart above shows the upward trend in home square-footage, but also indicates (based on the fact that Metrostudy's averages are based on actual closings versus completions) that builders are building homes larger than the average size of homes actually being purchased by buyers, and thus might be overshooting the optimal size desired by buyers. The trend for larger homes reflects the priority builders have placed on move-up product coming out of the recession, due to the fact that it hasn't been profitable for builders to build homes for buyers with lower budgets given the high cost of land, labor, and materials. 

Average single-family lot sizes—from both sources—have also been on the rise since the downturn. However, data show that new homes completed have a larger lot size on average compared to the average lot size of homes actually closed--with nearly a 1,000 square feet gap between the two in 2014. This year, Metrostudy reports an increase in lot size surpassing 16,000 square feet, (historically, the average lot size of a new home purchased lingered around 14,000 square feet for six years). 

“The (size) number increase can also be attributed to the segment of buyers who can actually go out and buy a new[ly] construction home which is marketed heavily and tailored to the move up buyers of larger lots,” commented Quita Syhapanya, Metrostudy regional director for the N.Y.-N.J. suburbs and the Philadelphia market. "These are the lots that the builders have available for buyers that makes the most sense financial[ly], due to the low inventory in available finished lots, and the high price tags that these lots have been purchased at."

"A builder can’t build a home for the first time buyer or even an entry level buyer at the prices these lots have been purchased at so the increase in home size and lot size makes sense, " added Syhapanya. "But is it what the market demand? No, but it is what makes financial sense today for the builder."

Syhapanya also noted that many home buyers (through current anecdotes), want a larger home but a smaller lot, because many prefer not to do the yard work that a larger lot requires. The trend is that buyers would rather trade a large lot for a larger living square-footage in desirable submarkets.