New Home Sizes Shrinking?

New Home Sizes Shrinking?

 

With the nation's housing market in a slump and the mortgage market in disarray, many home builders are putting up fewer supersize homes and offering smaller floor plans. That seems to be what buyers suddenly want in an era of high prices and tougher financing.

 

Home sales have plunged over the past year, leaving builders saddled with excess inventory, especially of larger, more expensive homes.  In July, new-home sales were running at a seasonally adjusted annual rate of 870,000 units, down sharply from 1.3 million in 2005.  More recently, turmoil in the mortgage market has made it harder for buyers to qualify for bigger loans.

 

All this seems to be causing builders to redraw their blueprints.  After reducing prices on their current inventories of unsold homes, the next step would seem to be to start building to a new market.  That new market is a lower price point at a smaller size.

 

While home builders are aware that customers increasingly want smaller, cheaper homes — and in some cases can't afford anything else — building those homes eats into their profits, often because of the high price they paid for the land the homes are built on.  That leaves them having to hope for higher sales volume to offset their reduced margins.

 

Look for the overall trend in new homes to move to smaller plans to keep prices affordable for the masses.