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Trends Toward Extremes (both large and small) in New Home Sizes Reflect the Economic Realities of U.S. Buyers

Posted by Matt Power, Editor-In-Chief

Feb 26, 2015 2:18:00 PM

The news about home building these days seems conflicted between the ever-growing trend toward tiny house living and the return of the McMansion. But both sync up perfectly with demographic trends.

tinyhouse-v-mcmansion

CONFLICT OF INTERESTS. Interest in tiny houses is in part the natural response of millennials to an out-of-reach new home market that serves an ever more elite group of affluent buyers. Images used in composite from http://designswan.com and http://remodelhomeideas.com.

A WALL STREET JOURNAL BLOG  this week expounded on the fact that the size of new homes sold in the U.S, just hit its largest median EVER: 2,415 square feet. But the writers quickly add that this figure may be short-lived--a blip in the market as we transition to the age of the millennial, the first-time, middle class buyer, who is expected to boost the market for smaller, first-time homes.

As someone who's covered both of these "trends," I don't find anything surprising about the coexistence of two "extremes" of home sizes in our current economic situation. If you look closely at who's actually buying new homes now (an NAR report that just came out also breaks this down), you see that it's the lucky few: older, mostly married couples who are still buying homes. Take a look at this home price chart from the WSJ:

cost_of_homes_wsj

 

Now look at how the number of first-time buyers is dropping off precipitously, (from the NAR report).

millennnialincome

Set aside the fact that Millennials may not share the same definitions of the good life as their suburbia-oriented parents and grandparents (a topic for another blog). They simply can't afford the ongoing costs of a large mortgage--in part because a big portion of them are carrying far more student debt than previous generations.

According to the NAR: "The concern over student debt is particularly alarming. According to a number of recent research studies, college seniors who graduated with student loans each owed an average of $25,250, up significantly from an average of $12,750 in 1996. Parents have accumulated student debt as well, $34,000 on average."

How much impact will this debt have on homebuying (59% say they still WANT to own a home someday.). Here's NAR's sample scenario:

student_loan_impact_on_homebuying

So Why the Tiny House Thing?

Millennials likely to enter the housing market as buyers, as I'll discuss in future blogs, are a fairly narrow niche, underrepresented by large demographic groups such as Latinos and African Americans. But they need affordable shelter badly, and tiny houses came along at about the right time.

So why tiny houses? In part, because they're hip, and trendy, sure. But you can also purchase one complete for about $30,000. Drop it on a piece of land gifted to you by your middle class parents, and you're living on your own--albeit it in a space the size of a small mobile home--for under $300 a month. That's an appealing number to young singles and couples used to shelling out $1000 or more a month in rent for a small apartment.

So what's the takeaway from this reality check on housing demand? There's nothing especially surprising or new about the floorspace "preferences" of these very different demographic groups of buyers. I'll be very curious to see how the young Millennials moving into their tiny homes respond as the economy improves.Will they stick with their leaner, greener (albeit cramped) lifestyle, or immediately move up to the big house in the bedroom community? Time will tell. GB

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