One sign of the end of the housing boom was the death of what the media liked to call “The McMansion” which were very large houses out of scale (and often character) for their neighborhoods. Several years ago at the height of the building cycle, entire new neighborhoods consisted of street after street of overly large houses in the 5,000 – 8,000 sq. ft. range. In infill situations, older existing neighborhoods of 1500 sq. ft. houses began seeing those smaller houses torn down and much larger new homes of 3,000-5,000 sq. ft. constructed on the same lot usually dwarfing existing older homes. That trend changed abruptly several years ago.
Which raises the question, “Why Are New Homes Getting Smaller?” The answer may not be what you have been led to believe. Historically speaking, in times of prosperity, new homes tend to grow in size. Some economists speculate it tracks the higher consumer confidence that exists during a healthy economy as wealth accumulation is often invested into the new home for both status and practical reasons. Even existing homes “grow” in size during this part of the cycle as remodeling projects often add extra square footage onto the existing structure.
As the housing market has significantly cooled over the past three years, new homes have begun to retreat in size and all the numbers support that trend. Some, who observed that the prolonged booming housing market fueled demand for larger and more opulent housing as a status symbol, argue that discreet and constrained spending needed to return to home ownership. Perhaps they are right, but I think the return to smaller new homes has more to do with economics that a resetting of our global social conscience. It is not that we have suddenly been convicted of the error of our ways as a result of some moral epiphany, it has more to do with who can buy and what can they afford.
As the market begin to slide and housing values took a tumble, many buyers who had purchased during the height of the market, simply had little or no equity and could not afford to sell and move up or down. Then, when the first-time buyer tax credit became available, that buyer was motivated to consider a new home. They had financial constraints and were, for the most part, price sensitive with affordability being a limiting issue. In response, builders of new homes began to introduce new, smaller floor plans to meet that market demand and the dominance of the first-time buyer and the house they could afford began to pull down the average size of all new homes sold. Most move-up buyers simply were out of the market and are only now beginning to shop for a new home.
A friend of mine and a new home marketing specialist once told me, “Square footage is the ultimate amenity!” Though we do see a trend to smaller (but nicer) mid-range housing, and a desire for new homes that are “fresh” in appearance and more practical in design, the universal benchmark will, over the long run, continue to be size (assuming locations are equal). It is not solely an issue of status; it is also practical. Growing families need more living and storage space and move-up housing provides that. As the economy improves, financing loosens up, and employment opportunities return to normal, I predict we will see the average size of new homes begin to grow as it historically has.
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