Average size of newly constructed home is shrinking

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Published Date 6/3/2019

It used to be said that housing was the straw that stirred the U.S. soup. Aside from the number of jobs it produced, it also simulated the economy in myriad ways, including prompting the purchase of consumer goods. While today's housing industry may not be synonymous with the business cycle, but Realtor.com's Andrea Riquier reports that the ups and downs in housing, which represents a big part of the economy, usually do offer hints about what's going on more broadly.

"Economists closely watch housing market indicators like sales volumes and home prices — as well as how Americans are accessing the market and managing their obligations to mortgages, rental costs, taxes, and so on," she says. But experts watch other trends as well. They look for signs of how the broader American economy is doing. Last week Rob Dietz, chief economist for the National Association of Home Builders, posted a research note about one in particular: how the size of newly-constructed single-family homes have been going down.

Dietz explains, "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."

While that is intuitive, the question looms: what about the specifics of what we're seeing right now? The median size perked up at the beginning of this year, as the housing market shook off a difficult 2018, according to Riquier, but for the most part sizes have been on a downward path since mid-2015.

New-home size over the years, says Dietz. "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.

In an interview with MarketWatch, Dietz explained how existing-home sales have only eked out a gain in two of the last 12 months. But that "would say we're past cycle peak but new construction should continue to trend up, which would suggest it still has legs left."

Pent-up demand could help extend the housing cycle, Dietz thinks. "It may even help cushion the overall economy from a near-term downturn." Dietz has no recession in his forecast for the foreseeable future.

Source: Realtor.com | TBWS

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