America's newest homes are shrinking

America's newest homes are shrinking

tiny houses

Tumbleweed Houses

New homes being built in the US are getting smaller.


This isn't just about demand for McMansions, the extravagant suburban houses that some buyers are passing over for more practical and modern homes. Rather, it shows that builders are cutting down to provide homes that are both profitable and affordable amid a shortage of inventory, said Matthew Pointon, a property economist at Capital Economics.

The average size of new single-family homes sold in the US peaked in 2015 at 2,520 square feet, Pointon said. Land availability is also responsible; the median lot size for new homes sold last year fell to 8,428 sq. ft., the lowest in 39 years.

Less available land, higher construction costs and higher wages for builders all add up to more prudent building and higher costs for developers.

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Capital Economics

"Unfortunately, and in contrast to what happened in the past, that may mean the recent dip in home size
will not be accompanied by a drop in median real new home prices," Pointon said in a note Friday.


So, what to do in the meantime? Pointon suggested that first-time buyers look further away from urban centers, where there's more land available.

Hurricanes make things worse

Developers have long cited worker and land shortages as part of the reason why, regardless of size, there's a shortage of affordable housing. Also, it's more profitable to build luxury housing in large cities where demand is strong.

The devastating hurricanes that slammed the southeastern part of the country last month could escalate the existing challenges, at a time of inadequate housing supply.

The National Association of Homebuilders, a trade organization, said the recent hurricanes intensified its members' concerns about land availability and building-material costs. In September, it reported a decline in member confidence, adding that it expected them to be more optimistic about the market once the rebuilding process starts.

construction wages

Andy Kiersz/Business Insider

"The health of the 2018 housing market will hinge on growth in construction employment," said Nela Richardson, Redfin's chief economist, after the September jobs report showed a 1% year-over-year drop in the industry. The brokerage firm's inventory tracker has recorded 23 straight months of declines.

"Efforts to rebuild after Hurricanes Irma and Harvey will divert labor resources that are sorely needed to increase the supply of homes for sale," Richardson said. "The housing market has never had to rebuild so extensively with inventory this tight before."