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Dude, people want smaller homes (sort of)

August 27, 2019 By Ryan Lundquist 13 Comments

Tiny homes are all the rage these days on HGTV, but most people would never pull the trigger on something that size. But the truth is homes in the United States are actually getting smaller lately. Well, sort of. Let’s talk about it.

Why this matters: Knowing a real estate market isn’t just about prices, but understanding what is happening to the housing stock.

Bigger homes in the United States (except lately): New homes seventy years ago were literally one-third the size they are now. So clearly buyers expect much larger homes today. But when looking at recent stats, the size of new homes has actually shrunk over the past few years according to the National Association of Home Builders. Why the shrinkage? Lots of people chalk it up to younger buyers entering the market and needing lower prices. Keep in mind new homes are still an average of 2,300+ sq ft though, so even if buyers are craving smaller homes, these dwellings are massive compared to decades ago.

How has home size changed in Sacramento? Like the United States, homes have definitely grown in size over the past two decades in Sacramento. In fact, based on MLS sales since 1998 we’ve seen the average home size increase by 11.6% and the median size increase by 15.2%.

What happens to home size during recessions? What’s going on with the dip in size after 2007? According to the National Association of Home Builders, the historical pattern is to see new home size fall after recessions as buyers tighten their budgets. Then as the economy improves we tend to see home size increase. The interesting part is we see this trend among new homes nationally and with MLS sales locally.

CLOSING THOUGHTS:

1) Baby Boomers & Millennials: In coming time we’re going to have lots of Baby Boomers downsizing and looking for smaller homes. As for Millennials we’ll keep learning what they want as they enter the housing market.

2) Marketability during recessions: With so much talk about a coming recession, let’s keep an eye on larger homes. Will they be less marketable during the next recession? Will buyers tend to gravitate toward smaller homes? These are key questions.

3) Smaller but not inexpensive: New homes have shrunk in size these past few years, but we’re nowhere near being able to call them inexpensive. The irony of course is society tends to expect new construction to be affordable for first-time buyers, but new homes are actually more expensive by virtue of being brand new. The truth is less expensive homes tend to be found more readily in the older housing stock instead of brand new subdivisions. It’s like shopping for a used car instead of the latest shiny brand new model.

I hope this was interesting or helpful.

BIG MARKET UPDATE I’M GIVING: I’ll be giving a deep market update at SAR on September 24th from 10:30-12:00pm. My goal is for everyone to walk away with an understanding of how the market is moving, ways to describe it, and some ideas for business in 2020. Sign up here.

Questions: What are you hearing from buyers and sellers about size? Any stories to share?

If you liked this post, subscribe by email (or RSS). Thanks for being here.

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Filed Under: Market Trends Tagged With: Appraisal, Appraiser, home size in sacramento, home trends, marketability, NAHB, recession, sellers and buyerse, size of homes, trends in Sacramento

Reader Interactions

Comments

  1. Gary F Kristensen says

    August 27, 2019 at 12:45 AM

    I could live in a tiny house. I’m a free spirit up here in Portland

    Reply
    • Ryan Lundquist says

      August 27, 2019 at 12:49 AM

      That’s a great clip. Love it Gary. I say go for it too.

      Reply
    • Brock says

      August 27, 2019 at 12:23 PM

      Ryan, great article. So now that kids are out of the house we are looking for something smaller. The big problem with homes like this every room seems to shrink with it. We don’t need 5 BR’s anymore, but still want a spacious kitchen and master. I would think there would be a demand for houses built with those amenities. (I have seen a few however).

      Reply
      • Ryan Lundquist says

        August 27, 2019 at 12:34 PM

        Thank you Brock. I’m so glad you mentioned this. Builders really need to understand their demographic and build accordingly. I can foresee a need for this exact type of product you mention. Good luck on your hunt. I hope you find something soon. Congrats on this new stage of life too. 🙂

        Reply
    • Tom Horn says

      August 29, 2019 at 5:17 AM

      What about the wife and kids, Gary? Do they feel the same way? 🙂

      Reply
  2. Brad Bassi says

    August 27, 2019 at 5:21 AM

    Ryan, great “little” piece. Okay so how about the guru of charts come up with the charts on sales of large McMansions. I can’t prove it down here yet, but it feels (yea I know a technical term) like the big houses over 5,000 sf are sitting on the market longer and don’t seem to be of interest to the same volume of buyers. Curious if others are seeing the same (feeling the same) in their markets. Now that is excluding the $100M mansions in Malibu that seem to be all the rage.

    Reply
    • Ryan Lundquist says

      August 27, 2019 at 6:04 AM

      Thanks Brad. Hmm, that sounds like a fascinating thing to explore. Are larger homes taking longer to sell? Generally the higher the price the longer it does take to sell. This is pretty much a market constant. If larger homes are priced higher, I would expect to therefore see them spend more time on the market. That may be worth showing visually though. Thanks for the idea.

      Speaking of insanely large homes, here’s that one at 924 Bel Air Rd in Los Angeles. It was on the market for $250M and had worldwide exposure. Well, it’s now listed at $150M. It just goes to show a property like this going completely viral wasn’t the end-all for actually selling the home. It turns out price may actually matter too…. https://www.realtor.com/realestateandhomes-detail/924-Bel-Air-Rd_Los-Angeles_CA_90077_M18631-26069

      Reply
      • Brad Bassi says

        August 27, 2019 at 6:16 AM

        Hey wait a minute price matters, WHAT? Not some of the sellers down here, they think there castle is worth it, no matter what the buyers think!@@@???!!!! How does $7,142/sf sound for a small 14,000 sf home, ocean front property. Oh brother Malibu. As to the longer time on the market, bigger homes, what I meant to say is they are staying on the market longer than there normal long marketing times. Guess it would make more sense if I put a few extra words in that comment, huh??? oh brother. Ryan take good care.

        Reply
        • Ryan Lundquist says

          August 27, 2019 at 6:35 AM

          Your comment was gold as always. Thanks Brad.

          Reply
  3. Kathy Cline says

    August 27, 2019 at 12:56 PM

    Size is truly relative. We raised seven children in 1,550 SF in San Jose and didn’t know we were in a “small” house (1973-2001). Once raised, we built 3,250 SF to host expanding families, but have downsized twice since then and love the lightness of the change. The prestige and functions of a large house lose their luster as life interests expand and “things” become less worth our attention.

    Reply
    • Ryan Lundquist says

      August 27, 2019 at 1:19 PM

      Fantastic comment Kathy. I appreciate hearing that. I think we often equate size with success, but it has nothing to do with success or happiness. I grew up in a 2-bedroom 700 sq ft house and we were happy despite having very little. My house right now is actually quite small for today’s standards of what a family of four ought to have. But we love it here. It’s all relative. Though I’ll admit I’m a bigger fan of having more space than not. You won’t catch me trying to live out of a 200 sq ft “tiny home” unless I have to. 🙂

      Reply
  4. Tom Horn says

    August 29, 2019 at 5:24 AM

    I think an important point here is that just because the homes are smaller does not mean they are less expensive. I also saw a trend after the recession of some homes being more basic with fewer variations in design and more like a box. I guess this cuts down on the cost as well. The homes also had fewer bells and whistles. I have seen a trend in the renovation of older homes also because you get more house for the money.

    Reply
    • Ryan Lundquist says

      August 29, 2019 at 7:53 AM

      Thanks Tom. It’s fascinating to see how the market changes. There are so many layers that might affect value, so it’s good to stay in tune with trends. If homes are trending smaller lately, we better know that. Or if home size dips during the next recession, it could be something to watch as appraisers. What will the market expect and value? Let’s keep watching.

      Reply

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