Originally posted on NAHB Eye on Housing blog:
After increasing and leveling in recent years, new single-family home size continued along a general trend of decreasing size during the third quarter of 2017. This change marks a reversal of the trend that had been in place as builders focused on the higher end of the market during the recovery. As the entry-level market expands, NAHB expects typical new home size to fall as well.
According to third quarter 2017 data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis, median single-family square floor area was slightly lower at 2,378 square feet. Average (mean) square footage for new single-family homes declined to 2,518 square feet.
On a less volatile one-year moving average, the recent trend of declines in new home size can be seen on the graph (shown top), although current readings remain elevated. Since cycle lows (on a one-year moving average basis), the average size of new single-family homes is 10 percent higher at 2,620 square feet, while the median size is 14 percent higher at 2,399 square feet.
The post-recession increase in single-family home size is consistent with the historical pattern coming out of recessions. Typical new home size falls prior to and during a recession as homebuyers tighten budgets, and then sizes rise as high-end homebuyers, who face fewer credit constraints, return to the housing market in relatively greater proportions. This pattern was exacerbated during the current business cycle due to market weakness among first-time homebuyers. But the recent declines in size indicated that this part of the cycle has ended, and size will trend lower as builders add more entry-level homes into inventory.
In contract to single-family patterns, new multifamily apartment size is down compared to the prerecession period. This is due to weak for-sale multifamily market and strength for rental demand.