New homes shrink 40 sq ft; industry not sure what it means

The median size of new American homes shrunk during the second quarter – but barely:

Of the 206,000 homes that went under construction in the second quarter, the median size was 2,479 square feet, according to Commerce Department data released Tuesday. That was 40 square feet smaller—or about the size of a walk-in closet—than the high set in the first quarter.

What exactly this means is unclear.

Entry-level buyers tend to purchase smaller homes. In recent years, many younger people who otherwise would buy a home have opted to rent due to stringent mortgage-qualification standards, relatively sluggish job and wage growth, mounting student debt and preferences for living near city centers, where land and homes are more pricey…

Several economists and builders foresee a gradual leveling off or decline of the median size of newly built homes. Builders such as D.R. Horton Inc., KB Home, Meritage Homes Corp., PulteGroup Inc. and Century Communities Inc. have reported early signs of first-time buyers returning to the housing market in the past year…

David Crowe, chief economist for the National Association of Home Builders, foresees a “moderation” of the median size of newly built homes as more first-time buyers come into the market. But he added that it will take a long time for the shift to be reflected in the national median-size figure, because the factors buoying first-time buyers—a loosening of mortgage-qualification standards and growth in jobs and wages—are progressing slowly…

“If anything, we’re seeing people trying to get into the largest home they can afford,” said Marcie DePlaza, a division president at GL Homes, a Florida builder that anticipates selling 1,000 homes this year at prices ranging from about $200,000 to $2 million. “With interest rates as low as they are, people can push to buy the biggest [home] in the group” that they are considering.

In other words, the data could be taken as pointing in multiple directions. A number of builders and others are at least preparing themselves for the possibility that more Americans, particularly entry-level buyers, want smaller homes. Yet, the big homes make a lot of money and wealthier buyers are a known quantity.

In situations like this, I imagine the housing industry would try to hedge its bets both ways. Playing it conservatively might work better in the long run though it might mean that some opportunities are lost. Some of these trends – such as Americans eventually wanting smaller homes – have been discussed for decades. Still, it takes time for some of these factors to work themselves out such as the behavior of younger homebuyers or the overall state of the economy or whether homeownership is promoted by politicians.

Porches on new American homes increase by 21% between 1993 and 2013

More new American homes have porches:

As the Census Bureau reported in June, 63 percent of new single-family homes completed last year had this once-again-trendy feature, up from 42 percent in 1993. So what’s the cause of this major upswing? Well, as Robert Stern, dean of the Yale School of Architecture, revealed to the Wall Street Journal, the return of the porch is reflective of a desire for social connection. And as “a place between the privacy of the house and the public world of the street,” it’s perfect for just that.

See the official Census data here – the porch is up as well as the patio while decks have decreased.

But, the real question is whether this increase in porches is related to an increased use of porches. The quote above from Stern is paraphrased as “reflective of a desire for social connection” but not necessarily an actual uptick in that. This gets at an issue at the heart of some critiques of New Urbanism and other attempts at neo-traditional architecture: does building a porch change social behavior? Indeed, what if having a porch of the front of the house is more related to what is perceived as features that increase a home’s value?

All together, these new porches may be much more aspirational and about financial return than utilized for socializing.  We’ve all heard the story that people in the not-too-distant past used to sit on the porch all the time but, unfortunately, I’m not aware of any data sources that consistently measure this in the American population at large…

Should your office cubicle be smaller than your suburban home’s bathroom?

A short passage from Cubedhighlights the increasing size of suburban bathrooms compared to the size of cubicles:

To add insult to injury, [cubicles] shrank. According to a BusinessWeek editorial from 1996, between the mid-1980s and the mid-1990s the average size of a cubicle decreased between 25 and 50 percent. Ironically, the editorial was spurred by BusinessWeek‘s editorial staff being “informed that most of us will lose our private offices in a year or two. This prompted a closer look at cubicles,” they wrote, “which are occupied by some 35 million of the 45 million white-collar workers in this country.” BW forecast only half humorously that at those rates the average cubicle in 2097 would be eight square feet. By 2006, when the average cubicle was seventy-five square feet, half of Americans would report that they believed that their bathroom was larger than their cubicle; one wonders to what extend the extravagant growth of the American bathroom, and of the suburban home in general, is partly a reaction against the shrinking of cubicles, where the owners of those bathrooms spend so much of their time. (p.243)

Interesting contrast. American homes are indeed larger today and have more bathrooms than in the past. Cubicles are often meant to be practical, places for business and yet suburbanites tend to desire more opulent bathrooms. Watch HGTV for a while and lots of homebuyers want bathrooms that are more like spas, have the latest features like granite and rain showerheads, and have plenty of space. For all these niceties, how much time do people spend in bathrooms compared to cubicles? The numbers wouldn’t even be close for the average cubicle dweller. But, bathrooms, particularly connected to the master’s bedroom, are showpieces, status symbols , and catch buyers’ eyes and cubicles are definitely not those things.

Focus groups examine home designs in a warehouse

Pulte recently put together some new home designs in a Chicago area warehouses to see how consumers would respond:

Basically, it was the latest incarnation of the company’s ongoing experiment: walking focus groups of consumers through full-size prototypes of floor plans of homes that Pulte intends to build, and asking for reactions before the first shovelful of earth has been dug. The consumers’ input enables the builder to tout the homes as “Life Tested.”

So on this September day, in an 88,000-square-foot warehouse in suburban Franklin Park, nine Chicago-area homeowners were life-testing “houses” framed in lumber and covered with sheets of Tyvek house wrap to simulate walls.

Pulte brought in a team of carpenters to do the framing for 11 houses and the fixtures within, such as kitchen islands and bathroom sinks, which were covered in corrugated paper and marked — in case you weren’t sure what you were looking at — “island,” “sink,” etc…

Total silence ensued — they weren’t supposed to speak to one another, so as not to influence opinions — as they wandered from room to room. Then they moved “upstairs” (that is, next door) to do the same thing.

This sounds like a helpful approach to getting feedback about particular interior features, even if the features aren’t fully constructed. However, I wonder how valuable this feedback is without situating a home within a particular neighborhood. I assume Pulte would say the neighborhood is another important factor and that they build attractive neighborhoods that only enhance the individual homes.

It is also interesting to see that Pulte’s designs are then said to be “life tested.” Pulte has built enough homes over the decades to legitimately claim this for established featuresbut can they really say this for new designs?

Shift from buying big homes to upgrading fixtures

I’ve suspected this for quite a while: here is some evidence Americans have moved past purchasing large homes, McMansions if you will, and are instead paying more for the finer touches in their homes.

Beginning next month, Majestic Building Products, a longtime wholesale supplier to companies such as Pulte Homes and Marriott International, is opening its showroom to the public.

Owner Jeff Jenkins said he is expanding the Leesburg-based company to keep up with growing demand for more-customized fixtures — ranging from bathroom mirrors to closet shelves.

“The whole philosophy has changed,” said Jenkins, who founded the company in 1989. “Ten years ago, everybody was out buying McMansions. People don’t care about having an 8,000-square-foot house anymore. They’re more interested in upgrading the little things.”

Those little things — door hinges, towel holders and shower doors — bring in about $9 million in annual revenue for the company. Jenkins said he expects sales to rise an extra 20 percent in the next year.

This could be viewed as a positive sign by those who decry the purchase of unnecessarily large homes: more Americans are paying attention to the interiors of their homes and making them enjoyable. Instead of focusing on size and its impressiveness and functionality, customizing the fixtures allows owners to focus more on their own personal interests and develop a home that more closely reflects their own tastes. This could be viewed as a shift away from mass-production to owners taking more responsibility and interest in their own settings.

On the other hand, focusing on the fixtures simply transfers the consumption from the larger issue of the home to the innumerable upgrades that could be made within a home. Think granite countertops, stainless steel appliances, hundreds of floor options, faucets, paint colors, and on and on. Plenty of money is still being spent on housing but instead of it going for new homes, it goes into new furnishings. As the article suggests later, the company is opening their showroom in part to help counter the fluctuations of the housing market and ensure a steady revenue stream. Can’t purchase the bigger or newer home you dream about? Instead, put that money into your current setting.

If this is all the case – and there is plenty of evidence that the new housing market is still sluggish – this hints at a possible large shift in American housing. Rather than being driven by housing starts and new development, perhaps the future in a tighter economic market is in premium fixtures and more customization of existing homes to the tastes of their current owners.

Worst year ever for sales of new homes

Here is another indicator that the American housing market has a long way to go before it is fully turned around: 2011 was the worst year for new home sales with records dating back to 1963.

About 302,000 new homes were sold last year. That’s less than the 323,000 sold in 2010, making last year’s sales the worst on records dating back to 1963. And it coincides with a report last week that said 2011 was the weakest year for single-family home construction on record…

Economists caution that housing is a long way from fully recovering. Builders have stopped working on many projects because it’s been hard for them to get financing or to compete with cheaper resale homes. For many Americans, buying a home remains too big a risk more than four years after the housing bubble burst.

Though new-home sales represent less than 10 percent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.

A key reason for the dismal 2011 sales is that builders must compete with foreclosures and short sales — when lenders accept less for a house than what is owed on the mortgage.

While several experts are quoted in this story suggesting this likely means the housing market has bottomed out, I am interested in whether this will become the “new normal.” In other words, perhaps we won’t ever get back to the level of new homes sales that we have seen in the past. This could take place for several reasons:

1. These foreclosures clogging up the housing market will continue to take years to clear.

2. There is less demand for new homes from consumers who decide to do other things with their money.

3. Policy makers turn their attention away from new homes and instead promote renting or rehabbing older homes.

4. Population growth is relatively small, driving down demand throughout the housing market.

The assumption I’ve seen from a number of commentators is that the housing market will bounce back at some point. Is this such an inevitable event?