The median size of new homes in the U.S. increased from just over 1,500 square feet in 1973 (the first year the Census Bureau began tracking new home size) to 2,309 square feet at its peak in 2007. The median size has declined almost 10% since then. Will the trend to smaller-sized homes persist?
Generation X also referred to as the Baby-Bust generation, is much smaller than the Baby-Boomers. However, they currently comprise approximately 22 percent of the adult population. 53 percent of Gen X’ers are now parents and they buy 51 percent of all newly constructed homes. Gen X’ers may prefer larger homes. But they are faced with high home prices driven by decades of strong demand from the Baby Boomers. The housing boom of 2005-2007 created an affordability barrier for these buyers. This affordability barrier combined with the more stringent lending standards and fewer mortgage options resulting from the subprime mortgage fiasco should drive them to purchase smaller, more affordable homes than the Baby-Boomers.
The largest group of potential new home buyers is Generation Y, also referred to as Echo Boomers or Millennials. Generation Y are the offspring of the Baby Boomers born between 1980 and 1995. Actually, the Echo Boomers are those born in the five year span between 1989 and 1993 when the number of births in the U.S. exceeded 4 million for the first time since 1964. Within the next 5 years, Generation Y, estimated to number about 74 million, will be entering the prime household formation and home buying ages of 25–44 replacing the far smaller Generation X and reversing declines in that age group created by the much smaller Baby-Bust generation. Gen Y’ers are entering their peak household formation years with more than five million more members than the Baby Boomers had in the 1970s. In fact, the number of Echo-Boomers aged 25–44 is expected to eclipse the number of Baby-Boomers when they were those same ages by more than 5.9 million. The 76 million Echo Boomers will be in the market for their first homes over the next 10 years. While boosting the quantity of homes demanded, the Echo-Boomers will likely enter the housing market with lower real incomes than people the same age did a decade ago. Many Gen Y’ers feel less economically secure than their parents, even though they may be earning more than their parents did at their age, because their money doesn’t buy as much. This will affect their attitudes toward home buying and ownership. These younger home buyers are showing a preference for less living space located in more compact, denser developments located closer to entertainment and recreation opportunities. With the number of Gen Y households projected to increase by between 2.0 million and 3.4 million, the demand for starter homes should remain strong for the next 10 years.
Next. household types and their impact on the trend to smaller-sized homes.
Chuck Miller GMB CGP CGB MIRM CMP MCSP CSP
President / Builder – Chuck Miller Construction Inc.