Friday, October 03, 2014
I often speak to local people who are concerned about the sizes of new homes in Westport and surrounding towns. This phenomenon is happening in areas across the country and a recent Wall Street Journal article on September 30th does a good job of analyzing how the Real estate market works: "It’s a strange time for houses to get bigger. The housing bust was followed by sharp criticisms of excesses such as McMansions and started a movement toward tiny houses. Combined with America’s aging, “empty nester” population, increasing environmental concerns and smaller household sizes, you might think the U.S. would want to build smaller houses. We haven’t. As of the last Census, the median house was 2,384 square feet—in between the sizes of a single and a doubles tennis courts. That’s up from 1,525 square feet in 1970, with a rise punctuated only by a brief stall during the recession. Over the last decade the median house size has increased on average about 25 square feet per year, and the share of new homes with 4+ bedrooms and 3+ full baths is going up. Why are new houses still getting bigger?" Here are the 5 Reasons: 1-Glut of Foreclosures: Foreclosures nationally are actually declining, however, in many parts of the country there is still housing inventory for sale made up of these homes which are bank owned. These homes are in good part smaller homes that were purchased with little downpayment. Since they make up a significant portion of the lower end of the market builders have no incentive to build new SMALLER homes. 2-Stiff Mortgage qualifications: Ben Bernanke just told reporters recently that he was turned down for a refinancing of his house. Incredible for someone who can command $250,000 for one speaking engagement, and whose house was purchased in the low 800s. But that incident is a pretty good indicator of how demanding banks have become for home buyers. Those individuals with lower credit scores will not qualify to purchase a new home. 3-Wealthier People are driving the Market: This is certainly true in our area. Wealthier people are looking for purchase larger homes. If they were looking for something smaller than builders would likely follow their desires. In the previous market there were more middle class buyers who could afford new homes. This is less true today. 4-Builders are Following Demand: It logically follows that builders who build speculatively will build to suit the type of buyer likely to purchase their product. 5-Americans Want More: "According to data from both the NAHB and Trulia, Americans usually want bigger houses—17% more space than they have. “As incomes go up, people are able to consume more housing, more entertainment, more tech and everything else,” according to Jed Kolko, Trulia’s chief economist. “We’d expect, as society gets richer—in the long run, not just over a year or a decade—people to live in larger housing.” According to Mr. Kolko, “The kind of thing that could change this is if we got poorer, or if attitudes or policies made large homes less desirable.” For now, big is king."