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November 18, 2017 | Shrinking Home Sizes: Downtrend Continues

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
New home sizes peaked between 2014 and 2015. A distinct down-sizing is now underway. What’s going on?

The National Association of Homebuilders (NAHB) reports Declining New Home Size Trend Continues.

After increasing and leveling off in recent years, new single-family home size continued along a general trend of decreasing size during the third quarter of 2017. This change marks a reversal of the trend that had been in place as builders focused on the higher end of the market during the recovery. As the entry-level market expands, NAHB expects typical new home size to fall as well.

According to third quarter 2017 data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis, median single-family square floor area was slightly lower at 2,378 square feet. Average (mean) square footage for new single-family homes declined to 2,518 square feet.

What’s Going On? NAHB View

 The post-recession increase in single-family home size is consistent with the historical pattern coming out of recessions. Typical new home size falls prior to and during a recession as home buyers tighten budgets, and then sizes rise as high-end homebuyers, who face fewer credit constraints, return to the housing market in relatively greater proportions. This pattern was exacerbated during the current business cycle due to market weakness among first-time homebuyers. But the recent 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.

Mish Take

  • Home prices have skyrocketed. Most new buyers cannot afford bigger homes.
  • Attitudes of millennials towards the “Ownership Society” has changed.
  • Families are getting smaller. The fertility rate is dropping.
  • Aging boomers downsize when they move.

Downsizing reasons go well beyond the NAHB recession analysis.

Mike “Mish” Shedlock

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November 18th, 2017

Posted In: Mish Talk

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