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December 2018

Home sizes shrinking - or are they?

Newly-built single family homes are trending smaller, marking the third year of shrinkage, according to the National Association of Home Builders' analysis of third quarter 2018 census data. Industry insiders attribute the adjustment to an incremental move to additional entry-level home construction and to patterns associated with recessions.

Using data from the Census Quarterly Starts and Completions by Purpose and Design, NAHB reported median single-family square foot area decreased to 2,320 square feet from the year-ago median of 2,373 square feet.

Average square footage also declined to 2,495 square feet, down from twelve months ago when it was 2,576 square feet.

A different, less volatile metric - a one-year moving average - reveals the median size of a single family home is 13 percent higher and the average size is 8 percent higher when compared with cycle lows.

Robert Dietz, NAHB's chief economist said 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."

NAHB said the pattern was exacerbated during the current business cycle "due to market weakness among first-time homebuyers and supply-side constraints in the building market."  Current declines in size indicate this part of the cycle has ended, NAHB noted.

Dietz expects size will trend lower as builders add more entry-level homes into inventory and the custom market cools.