Bigger Homes, Bigger Sales Problems? 2009
2013
Average home price
$248,000
$318,000
Average home size
2,362 square feet
2,679 square feet
Homes with at least four bedrooms
34%
48%
New two-story single-family house construction
51%
60%
1.28 million
306,000.
Number of new home sales Data: U.S. Census Bureau
APRIL 2014 n National Mortgage Professional Magazine n
NationalMortgageProfessional.com
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By Phil Hall Homeownership is often referred to as the American Dream, but it appears that today’s dreams are somewhat grander than ever before. According to data from the U.S. Census Bureau, the average size of an American home has grown from 2,362-square feet in 2009 to 2,679-square feet in 2013. This new trend to XXL-sized residences includes more bedrooms. In 2009, the number of new homes with at least four bedrooms took up 34 percent of the market, while last year it captured a 48 percent market share. Furthermore, the percentage of homes with at least three full bathrooms was 35 percent last year, up from 23 percent in 2010, while the percentage of homes with garage space for three or more vehicles rose from 16 percent in 2010 to 22 percent in 2013. And anyone looking for a single-level new home may have to hunt harder. The U.S. Census Bureau also found that the percentage of new two-story single-
family homes climbed from 51 percent in 2009 to 60 percent in 2013. Of course, bigger homes come with bigger price tags: the average sales price for new homes was $248,000 in 2009 and $318,000 in 2013. However, this new wave of larger residences is not being met with a “Field of Dreams”-worthy scenario of people coming just because something was built. During the period from 2009 to 2013, the number of new home sales fell from 1.28 million to 306,000. “It requires a high credit score and a nice income to qualify for a mortgage,” said Rose Quint, assistant vice president for survey research for the National Association of Home Builders (NAHB) in a presentation during the recent International Builders’ Show in Las Vegas. “There are not as many people who have the income that can qualify for a new home.” Brian C. Coester, CEO of Rockville, Md.based Coester Valuation Management Services, questions whether home builders have been accurately reading the needs of the housing market when shifting to the construction of larger homes. “There is not necessarily a demand
for this,” Coester observed. “The builders get more margin selling higher priced homes. But that situation is designed by the builders. If they set to build cheap affordable housing, they can do it and the houses would sell instantly. They’re building bigger and more expensive housing, but that is not necessarily what people want.” Gina Jacobs, president of Woodbury, Conn.-based Gina Jacobs Real Estate & Property Management, questions whether builders were a little too optimistic in believing that larger and more expensive houses could easily sell during a period of economic fragility. “It is always typically harder to sell larger, higher priced homes,” Jacobs said. “I don’t see families move up into larger homes. I think people in this economy are trying to keep things modest. These larger homes are targeting a very small part of the market.” Yet Rick Sharga, executive vice president of Irvine, Calif.-based Auction.com, notes that while this might be a small market segment, it nonetheless has rather deep pockets. “It appears to be that the only real
lending activity in the non-Qualified Mortgage world is in jumbo loans that are issued to borrowers with extremely high credit worthiness,” Sharga said. “I am only seeing these types of properties being built when there is some legitimate market demand, with qualified borrowers that are able to get loans.” Sharga added that an absence of jumbo loans could force the builders step in and fill the origination void. “If financing is not available, we could wind up with white-label product offered through the builders,” he said. But Jacobs stated that the industry should not lose sleep worrying about this sector. “The rich will always be able to purchase a home,” said Jacobs. “I see a problem that is more widespread—trying to get people mortgages in all priced homes. Guidelines have tightened so much that most people have been squeezed out.” Phil Hall is senior editor of National Mortgage Professional Magazine. He may be reached by e-mail at philh@nmpmediacorp.com.