How large are newly built houses?
Data just released by the Department of Commerce reveals that, for the first time in several years, the average size of new single family homes fell in 2016 to 2640 square feet. This decline was from an average of 2687 sq. ft. in the prior year. This drop reverses, perhaps temporarily, a steadily increasing trend in house sizes going back to the early 70s when this data first began to be gathered. In fact, as can be seen in the chart below, the average house has increased by just about one thousand square feet over the last 40 years.
Also, from a cyclical low of 2559 square feet in 2011, house sizes rose in each of the five years ending in 2015, only to decline by 47 sq. ft. last year. For easier visualization, the chart below displays average home size since 2010. We can appreciate that houses built last year were on average smaller than those of the preceding two years.
A drop in home size is a rare event that has occurred only three times in the last forty years, outside of the two deep economic recessions of 1980-82 and 2007-08. The chart below displays the annual change in the average size of single family homes built since 1976. Red bars indicate years in which the size of houses fell, most notably during the two recessions mentioned above.
There were other three other years when sizes fell, 1991, 1995 and 2002. But the drop in all three years is barely perceptible in the chart below. In contrast, last year’s drop is the second largest after the 81 sq. ft. decline we saw in the middle of the 2007-09 recession.
Regional Differences
There are significant differences in home size between regions, as would be expected. However, contrary to what one may suspect, the biggest new houses are neither in the West nor the South, they are in the Northeast. One would normally assume that largest houses would be found in areas where land is plentiful, but there are many other factors driving house size. One, a key one, is naturally household income. Another one is local regulations or restrictions which impede or restrict housing construction.
So we find that houses in the Northeast region of the U.S. reached 2796 square feet last year, nearly 6% or 156 bigger than the national average. At the other extreme, as can be appreciated in the chart below, the smallest new houses can be found in the Midwest, that posts an average of 2474 sq. ft., or 6.3% lower than the U.S. average. Houses in the other two regions, South and West, are just about equal to the national average.
Moreover, the Northeast region has led the nation with the biggest new houses in 31 of the last 40 years. The only exceptions were in the early 70s, when the South boasted the largest new houses in the nation.
Size of Units in Multifamily Buildings
In contrast to new single family houses, we find from the same survey data that housing units in multifamily buildings actually increased in size last year, to 1187 square feet. But the gain in multifamily house size over the last three years shown in the chart below, do not bring multifamily sizes to the peak levels seen during the mid-2000s housing bubble. In 2007 the average size of a multifamily housing unit reached 1300 sq. ft.
We should note that there are large difference between multifamily units built for rent and those built for sale (a large number of the latter are sold as condominium units). While the average size of units built for rent was 1132 square feet in 2016, far below the average size of those built for sale that reached 1792 sq. ft. last year.
Next week we will cover other aspects of this survey that are relevant to our businesses.
Note: These data are taken from an annual survey conducted by the US Department of Commerce among a large sample of newly-built housing units, both single and multifamily homes. The raw data from the survey can be found here: https://www.census.gov/construction/chars/
Manuel Gutierrez, Consulting Economist to NKBA
Explanation of NKBA’s Economic Indicators Dashboard
The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal indicating that the latest value is improving; “Yellow,” as it’s common understood denotes caution because the variable maybe changing direction; and “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.
Note that all the data, except for “mortgage rate” and “appliance store sales” are seasonally adjusted and are represented at annual rates.
Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately-owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.
Single Family Starts. It is the number of single family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.
Existing Home Sales. These data are issued monthly by the National Association of Realtors, and capture the number of existing homes that were sold in the previous month.
High-End Home Sales. This series are sales of new homes priced at $750,000 and over. The data are released quarterly by the U.S. Department of Commerce, and are not seasonally adjusted. Thus a valid comparison is made to the same quarter of prior year.
Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.
Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.
Building Materials Sales. These data, released monthly by the Department of Commerce, capture the total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.
Appliance Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as Home Centers, for instance.
We hope that you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.
