Home Sizes May Be Indicator for Economy’s Health

June 4, 2019

The size of newly constructed homes may be a sign of how well the economy is doing, according to a new analysis by Robert Dietz, chief economist for the National Association of Home Builders.

“Typical new-home size falls prior to and during a recession as home buyers tighten budgets, and then sizes rise as high-end home buyers, who face fewer credit constraints, return to the housing market in relatively greater proportions,” he notes.

So, how are home sizes doing now? The median new-home size increased at the beginning of this year, but overall sizes have been falling since mid-2015.

“Current declines in size indicate that this part of the cycle has ended, and size will trend lower as builders add more entry-level homes into inventory and the custom market levels off,” Dietz notes in the research.

After the Great Recession, builders were unable to build entry-level homes due to cost constraints on labor and available lots. Pent-up demand in the entry-level market could help lengthen this part of the housing cycle, Dietz told MarketWatch. If so, he says new-home construction may help cushion the economy from a near-term downturn.

As such, Dietz—joined in a sentiment shared by other housing economists—has no recession fears in near-term forecasts.