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New home sizes shrink as demand for entry-level homes increases

by Rincey Abraham

After the 2009 recession, single-family home sizes have been increasing. But lately, that trend has been changing as builders are capitalizing on the demand for starter homes, according to the National Association of Home Builders.

The median single-family square foot area on new construction projects decreased to 2,389 square feet in the first quarter of 2017 from 2,440 square feet from the fourth quarter of 2016. The average square footage also declined from 2,652 square feet in the fourth quarter of 2016 to 2,628 feet in the first quarter of this year.

Additionally, the average square footage for single-family homes is 10 percent higher than during the lowest point of the latest cycle and the median square footage is 14 percent higher, which aligns with post-recession trends.

Previously, builders were focusing on higher-end homes with a larger square footage during the recovery of the housing market. This is due to high-end homebuyers having fewer credit constraints and able to purchase homes during a recession.

NAHB also reports that the average new home size falls prior to and during a recession as home buyers tighten their budgets. But the latest decline is most likely indicating that this trend of high end homes is ending and home sizes will continue to decrease as builders work to add entry-level homes.

However, residential construction is unable to keep up with demand as starter home inventory declined in the first quarter of this year, according to Trulia. The number of starter homes dropped from 26.1 percent in the first quarter of 2016 to 25.9 percent in the first quarter of 2017. The rise in demand also led to rising prices on starter homes with an 8.3 percent increase in median list price since last year. The median list price for a starter home now sits at$165,015.

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