Size Matters in Real Estate: Better Times, Bigger Homes

Kent Dussair
CDS Community Development Strategies

Reports of the death of the big American home have been greatly exaggerated. According to data from the U.S. Census Bureau, the size of new American homes has been on the rise since hitting a low point in late 2009. In that year the median average fell to 2,159 square feet (SF), down from the pre-recession high of 2,295 SF in 2007. During that short period of decline, some pointed to the end of the big American home trend—citing the downsizing of baby boomers and the differing preferences of millennials. But since 2009, the median average home size in America has steadily increased. In 2014, the median average was 2,517 SF—a  17% increase since 2009 and a 60% increase since 1974.

For more on national trends in the homebuilding industry, see the US Census' webpage titled: Characteristics of New Single-Family Houses Completed.

Although the last 40 years has seen the average American home get considerably bigger, there are noticeable dips during periods of recession. This is the result of home builders and developers reacting to demand from the market. When times are good and salaries are high new home buyers are looking for larger homes on larger lots. Not only because they can afford and want more, but also as an opportunity for investment. However, when the pendulum swings and the economic future appears grim, home buyers become more cautious. Demand for higher priced homes on big lots diminishes while demand for lower priced homes on smaller lots picks up. 

For a builder and/or developer to outsmart this phenomenon he/she would need a crystal ball. Even then, the lag time to acquire land (or re-plat existing land) is somewhere around two-years. By the time economic conditions change, the lots on the ground are often too large or too small to meet the sweet spot of present-day market demand. 

While builders and developers across the country are seeing a resurgence in the demand for larger homes and larger lots, the Houston area is currently seeing a reverse of that trend. ​High income job growth over the last year is reportedly negative in the Houston area. This is directly related to the current slump in oil prices. As can be seen in the figure above, the Houston area has a significant percentage of its jobs in oil related industries, compared to other areas of the country with comparable population (like nearby DFW). When job losses occur in oil related industries, it has a pronounced impact on the Houston area. Several homebuilders in the Houston area are currently scrambling to find smaller and less expensive lots, while developers are shaking trees to try and come up with more. And while everyone understands that demand for large lots will inevitably return, timing is key.

About the Author: Kent Dussair founded CDS in 1971 for the purpose of providing professional market and economic research and consulting services. With over 50 years of professional experience, Kent continues to provide CDS with valuable insight into how and why local, regional, and national markets are driven.