Investing in the Housing Recovery

Written By Brian Hicks

Posted June 5, 2013

There may be some truth to the fabled American love affair with all things big. We’ve noted that in recent months the domestic housing market appears to be en route to a recovery. Now, a Census Bureau report suggests that the average size of new homes over the past three years has gone up significantly—so much so that in 2012, the median American home was as large as 2,306 square feet. That’s an increase of 8 percent from equivalent figures in 2009.

McMansionBack when the housing market collapsed, average new American homes underwent some shrinkage; square footage shrank by 6 percent over two years, and noises were made about the eclipse of the so-called McMansions.

If the new figures indicate any underlying trends, it may be that we miscalculated back then. It isn’t that people made a definitive shift away from big houses; rather, they just couldn’t buy homes as big as they wanted. CNNMoney reports that GL Homes, a homebuilding company, has been selling homes that are—on average—7 percent larger through the first five months of 2013 compared to the same period last year.

But there may be another factor that’s influencing the move toward larger houses this time around. Remember that mortgage and credit standards have been tightened quite a lot in the wake of the sub-prime crisis. As a result, those who are getting credit today tend to have much better credit (on average) than those who received big loans last time. In other words, the average home loan purchaser today may well be more financially secure than last time around.

At least, that’s what the National Association of Home Builders’ Rose Quint asserts on CNNMoney:

“It has to do with who has access to credit,” she said. “The mix of homebuyers is different. When lending returns to normal, home size will go down again.”

While you may believe this to be reason to cheer, the apparent return of McMansions is not actually good news for a very crucial demographic: first-time home buyers. After all, these are the people who should be the biggest group out of all home buyers. Yet the very return of McMansions threatens this vital group.

Over in Arizona, March saw the sale of 321 new homes. These were, on average, 30 percent bigger than usual resales, reports BizJournals. It’s safe to assume that the trend is indeed nationwide. New homes being bought are, on average, a lot bigger than usual. Production, nationwide, remains below historical averages, yet the housing market continues to post gains (and impressive ones, at that).

First-Time and Lower-Income Buyers

As should be clear by now, one side-effect of all this is that new, first-time home-buyers are being priced out of the housing market. And it isn’t just them; lower-income home-buyers, too, are at risk of being priced out in a newly-forming market that only caters to the well-off.

Recall that lending practices in general have become much more tight-fisted. When you consider that, on top of that tightening, lenders are apparently happy lending to people who want to buy bigger houses than usual, that leaves the more modest consumers hung out to dry. For first-time buyers and lower-income consumers, the number of available options continues to dwindle.

Take Phoenix, Arizona, for example. The area already has a shortage of available homes for sale. When you look at the figures in detail, though, it becomes clear that this paucity is most intense in the sub-$200,000 price bracket.

When you put a stretched market that already suffers from a lack of adequate options together with a market that is skewed toward the well-off, the picture doesn’t look very optimistic. And yet things may not be entirely as they seem.

Multi-Family Housing

One trend that’s emerged after the big market crash is that of families moving in together. I’m not just talking about fresh graduates who need to move back in with their families while they fight the odds out in an unfriendly job market; I’m also talking about entire families choosing to move in together to pool resources and generally make life easier.

Choosing a larger home makes good sense for this. Also, newer (and larger) homes typically feature added benefits like state-of-the-art green HVAC options, which can significantly reduce the cost of home ownership in the long run. So this is overall a very interesting picture, but we just don’t have enough information yet. 


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