New-Home Sizes Show Signs of Leveling Off

August 20, 2014

Following two years of increasing home sizes, the median size of new-homes appears to be leveling off as entry-level buyers return to the market drawn to more modest homes, The Wall Street Journal reports.

The median size of homes that builders started construction on in the second quarter was 2,478 square feet, holding the same as the previous quarter. It remains near the record high of 2,491 square feet, which was reached in the third quarter of 2013, the Commerce Department reports.

The median size of new homes began to increase in 2012 as move-up and luxury buyers began a drive to purchase larger homes. Also, buyers were showing preferences for more bedrooms (at least three), larger garages, basements, and wide-open living spaces like great rooms, according to a 2012 survey of new-home buyers conducted by the National Association of Home Builders. 

While move-up and luxury buyers mostly drove the demand to bigger homes, entry-level and first-time buyers, who tend to buy smaller homes, have been notably absent from the market due to tight mortgage underwriting standards and low wage growth, The Wall Street Journal reports.

However, homebuilders are reporting a slight uptick in entry-level buyers heading back into the market. Homebuilders such as D.R. Horton Inc., KB Home, PulteGroup Inc., and Century Communities Inc. have all reported a slight increase in entry-level buyers re-emerging. For example, Pulte reports that sales of its entry-level Centex homes, priced at average of $202,000, rose by 26 percent in the second quarter compared to a year earlier.

"The expectation will be, whenever we see an increase in first-time buyers, that will put downward pressure on the trend" of new-home sizes, says Robert Dietz, an economist with the home builders group. "Then it will be a question of whether we'll see some actual decreases in the median as the market mix [of buyers] changes over the next two years."

Source: “U.S. Home Size Levels Off, for Now at Least,” The Wall Street Journal (Aug. 19, 2014)