Early Signs Indicate That Entry Level Buyers Are Back

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Could Decline in Median New-Home Size Herald Return of Entry-Level Buyers?

Newly built, single-family homes in the U.S. finally are getting smaller, a sign that a long-awaited shift of builders to slightly smaller, more affordable homes likely has started.

Commerce Department data released Wednesday shows the median size of a single-family home built in the third quarter was 2,414 square feet, down 2.3% from the second quarter measure of 2,472.

The third-quarter figure is the lowest since 2012’s fourth quarter, and it is the second consecutive quarterly decline following a 0.2% drop in this year’s second quarter.

Median new-home sizes had been on a general upward swing since 2012 as builders focused on building increasingly larger, more expensive homes to cater to the better-heeled buyers with the income and credit to buy homes. Entry-level buyers, meanwhile, remained largely sidelined by tepid wage growth, mounting student debt and stringent mortgage-qualification standards.

Now, early signs are emerging that entry-level buyers are coming back. National home builder D.R. Horton Inc. last week posted a 38% gain in sales orders for its fiscal fourth quarter ended Sept. 30, fueled partly by hefty gains from its new Express brand of homes priced at less than $200,000.

On Wednesday, Commerce reported that construction starts for single-family homes increased by 4.2% from a year earlier to a seasonally adjusted annual rate of 696,000. The most likely source for that greater volume of starts is entry-level buyers.

Thus, the third-quarter decline in median new-home size “doesn’t reflect changes in preferences, necessarily,” said Robert Dietz, an economist with the National Association of Home Builders. “It reflects who’s buying new, single-family homes.”

The median new-home size now stands 3% below its recent high of 2,491 square feet in the third quarter of 2013. But it still is 8% higher than its recent low of 2,236 square feet in the third quarter of 2011.

Commerce’s report on October new-home sales, slated for Nov. 26, will show whether the trend has sapped new-home prices. The median price of a newly built home in September was $259,000.

“I do know that bigger houses are not as in-demand as smaller houses unless you’re in a community where you’ve tapped into a niche,” said Brian Johnston, chief operating officer of Canadian builder Mattamy Homes, which operates in four U.S. states. “We would definitely be seeing more affordable product as the trend line.”

Source: Kris Hudson, Wall Street Journal. Original article is found here.

Joe Moshe
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Joe Moshe

Joe Moshe is the Broker/Owner of Charles Rutenberg Realty Long Island, offering 100% commission to Agents. With over 1000 agents, it's one of the fastest growing, most progressive real estate brokerages on Long Island.
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