Lead Story… New homes have been getting larger for quite some time, since the end of the Great Recession to be exact. Conventional wisdom had held that the size of homes would shrink after the Great Recession due to more focus on affordability and reduced financial capacity of buyers. However, except for a brief blip in 2009 where new homes shrunk, it didn’t happen. Instead, mortgage credit shut off for all but the most qualified buyers (read: wealthier) which pushed builders to focus on higher-end, larger homes where mortgage financing was available rather than smaller, entry level homes where mortgage financing was scarce. This led to much hand wringing among urbanists and others that McMansions, which, in addition to being ugly are often bad investments would continue to be a dominant feature of the suburban American landscape. The starter home market has been slow at best (McMansions make crappy starter homes for a whole bunch of reasons) and many astute housing market observers have noted that we need to see decreasing new home sizes in order for that market to emerge from it’s slump. Fast forward to 2016 and it might finally be happening. From CNBC:
For the first time since the recession, home size is shrinking. Median single-family square floor area fell from the first to the second quarter of this year by 73 feet, according to the National Association of Home Builders (NAHB) and U.S. Census data. That may not sound like a lot, but it is a clear reversal in the trend of builders focusing on the higher-end buyer.
An increase in home size post-recession is normal, historically, as credit tightens and more wealthy buyers with more cash and better credit, rule the market. As with everything else in this unique housing cycle, however, the trend this time is more profound.
“This pattern was exacerbated during the current business cycle due to market weakness among first-time homebuyers,” wrote Robert Dietz, NAHB’s chief economist. “But the recent small declines in size indicate that this part of the cycle has ended and size should trend lower as builders add more entry-level homes into inventory.”
Sales of newly built homes jumped more than 12 percent in July compared to June, according to the Census, and the biggest increase was in homes priced in the mid to just below midrange. The median price of a new home sold in July fell 1 percent compared to July a year ago. Again, not a huge drop, but a reversal from the recent gains in new home prices.
“The majority of it is a question of affordability,” said Bob Youngentob, president of Maryland-based EYA, a builder concentrating largely in urban townhomes. “People want to stay in closer-in locations, at least from our experience, and closer-in locations tend to be more expensive from a land and development standpoint and so, the desire to be able to keep people in those locations is translating into smaller square footages and more efficient designs.”
This is undoubtedly a positive development in the market so long as the trend holds. What makes it even more significant is that the internals or the numbers behind the size reduction are also very positive. First off, new homes are getting smaller at a time when new home sales have risen to a level not seen since 2007, confirming that this isn’t a trend based on weak sales volume or diminished starts in select geographies that favor smaller units. Second, home prices fell, albeit only by 1%. Often times, falling prices are viewed as a negative. However, in this case, they should be viewed positively since, along with shrinking new home size and increased new home sales, they imply that product mix is moving in a more affordable direction. Size matters and the shrinkage that new homes are experiencing could be the best news for the US housing market in quite some time.
Much Ado About Nothing: This far, experts’ dire claims about economic calamity following the Brexit haven’t amounted to much at all in the real world.
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Alternate Universe: Only in the bizarro-world of California land use politics would construction labor unions undermine a bill that would have created substantially more construction employment opportunities.
Dumbfounded: Suburban NIMBYs oppose any and all development then act puzzled about why Millennials don’t want to move to their communities.
Consider The Source: How Jose Canseco went from baseball’s steroids king/whistle blower to Twitter’s favorite financial analyst.
There Goes the Neighborhood: There is a new startup in Silicon Valley called Legalist that relies on an algorithm to predict court cases and will fund your business-tort lawsuit in exchange for a portion of the judgement.
Worth Every Penny: In honor of National Dog Day last week, here is a breakdown of just how much we spend on our four-legged best friends.
Chart of the Day
Mom’s basement is a really popular address in New Jersey
No I Will Not Make Out With You: A Mexican teen died from a blood clot that resulted from a hickey that his girlfriend gave him.
Bad News: A new study finds that reading on the toilet is bad for you. Just like that, my reading location for much of Landmark Links’ content became an occupational hazard.
Priorities: An 18 year old girl who escaped from an Australian correctional facility messaged police via Facebook to ask them to use a better picture of her than the mug shot that they posted. She even provided a picture that she wanted them to use. Of course, police were then able to track her phone and arrested her soon after.
Video of the Day: A video taped melee on a NY subway that resulted from a crazy woman getting on a packed subway with a bucket full of hundreds of crickets and worms that she was trying to sell made me laugh so hard that I cried. And yes, I’m aware that this probably makes me a terrible person.
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