From Fox News:
Since the Great Recession, more new homes have been selling at what we’d call the extra-large size: 4,000 square feet or bigger. Given that many Americans suffered financially during the recession, that might be surprising. Wouldn’t it make more sense for home sizes to go down during an economic downturn, not up? Here’s why new homes have been trending in the opposite direction of what you might expect.
As the total number of new home sales has come down, the proportion of these homes that are large has gone up.
In 2005, homes 4,000 square feet and up accounted for 7 percent of new home sales.
In 2015, homes 4,000 square feet and up were 11 percent of new home sales.
On the flip side, a smaller share of the new homes selling are 1,400 square feet or less.
In 2005, 9 percent of new homes sold were 1,400 square feet or smaller.
In 2015, 4 percent of new homes sold were that size.
To look at it another way, in 2015, nearly three times as many extra-large new homes (11 percent) sold compared with small ones (4 percent).
In recent years, builders have focused on building larger homes because they have financial incentive to do so. “Builders were only building luxury, high-end homes because those were the sure thing,” says Nela Richardson, chief economist at Redfin, a real estate data firm and brokerage. Not only did wealthier buyers have the money to purchase homes, but they were also the only ones who could qualify under tighter mortgage standards.
Other factors in the construction industry have amplified this tendency. “Lot availability has declined,” says Nino Sitchinava, principal economist at Houzz. As lots become more scarce and expensive, and construction costs go up, builder profit margins get squeezed. It makes economic sense for developers to build larger homes, Sitchinava says.
Also, foreclosures are still happening, and homes that are foreclosed tend to be small- to medium-sized. Although the distressed sales rate has come down, it’s still about 23,000 per month, according to Attom Data Solutions, formerly known as RealtyTrac, a firm that tracks foreclosure. That’s more than twice the rate in 2000. With so many small- and medium-sized homes going through foreclosure, builders don’t have incentive to build homes on the smaller end. “It doesn’t make sense to make medium- to small-sized homes when there are so many existing homes that are not doing well,” Sitchinava says.
The result is not enough supply on the more affordable spectrum to meet the demand. As a result, prices of starter homes and small homes are rising at a faster rate than prices at the high end of the market.