Just over 25 percent of new homes built and sold in the U.S. were larger than 3,000 square feet last year, the highest percentage since 2007.

“It’s about opportunity,” Jack McCabe, chief executive officer of Deerfield Beach, Florida-based McCabe Research and Consulting, said in a telephone interview. “It’s about interest rates. And it’s about short memories.”

What can you remember about buying based on payments versus the value of an asset?
U.S. New Home Sales: Up 19.8% YOY In May But Well Below Average [SocketSite]
Americans Living Larger As New-Home Sizes Defy Economy [Bloomberg]
Whoops, They Did It Again: Mortgage Rates Hit New All-Time Lows [SocketSite]

Comments from Plugged-In Readers

  1. Posted by ReadingForRealtors

    Another Memory
    “The typical monthly mortgage payment that Bay Area buyers committed themselves to paying last month was $1,491, up from $1,473 in April, and down from $1,533 a year ago. Adjusted for inflation, last month’s payment was 47.0 percent below the typical payment in spring 1989, the peak of the prior real estate cycle. It was 60.8 percent below the current cycle’s peak in July 2007.

    47% Below 1989

  2. Posted by Brahma (incensed renter)

    As I posted in a thread about housing starts in 2011:

    To those who say that a primary residence of 1750 sq.ft. is too small: In 1950, the average single-family home for 3.4 people was roughly 1100 sq.ft.

    Needless to say, the average household size today is less than 3.4 people.

  3. Posted by Brahma (incensed renter)

    I forgot to connect the above with the “money ‘graphs” from the Bloomberg piece:

    The behavior of wealthier households can have an adverse effect on less-wealthy people, Robert Frank, a Cornell University economist, wrote in an e-mail, describing the phenomenon as a “positional arms race.”

    “Additional spending by the rich shifts the frame of reference that defines what the near-rich consider necessary or desirable, so they too spend more,” he wrote…“Such expenditure cascades help explain why the median new house built in the U.S. is now about 50 percent larger than its counterpart from 30 years ago, even though the median real wage has risen little since then,” Frank wrote.

    Emphasis added.
    Of course, when regulators and congress let banksters run wild securitizing mortgages and creating derivatives, the increased availability of credit substitutes (at least it did during the credit bubble) for real household income, allowing “less-wealthy people” to, if not keep up with the Joneses, at least follow them closely behind.

  4. Posted by lol

    In 1950, the average single-family home for 3.4 people was roughly 1100 sq.ft.
    True, but they were not hoarding cheap products made in Asia like we do. We need them to lend us more money so that we can buy and store what they sell us.
    allowing “less-wealthy people” to, if not keep up with the Joneses, at least follow them closely behind.
    If keeping up with the Joneses involves borrowing and overextending, then there’s no honor in doing that. But of course much of the borrowing is invisible to everyone, which poses the appropriately named “positional arms race” you quoted. For instance someone refinancing his home to put 60K into a car he couldn’t otherwise afford.
    Trying to outspend and occupy more space is mostly done at the expense of one of the most precious assets: time. You’ll need more time at work to pay off your stuff, or you might have to work past retirement age to pay off the mortgage. Managing all your toys takes a lot of time. Chasing down what will make the Joneses jealous takes time. It’s time taken from quality time with family and friends.

  5. Posted by Brahma (incensed renter)

    both good points, lol. I think you’re right about consumption of cheap items imported from Asia, but a lot of rooms (going on/by what I’ve seen over the past four years) that are present in newly-built large homes aren’t for storage, they’re much larger closets and bathrooms and bedrooms.
    This is from a summary of a story I originally watched on “60 Minutes” in 2005, ‘Living Large’:

    Those Joneses are everywhere…building…McMansions or starter castles.

    Whatever you want to call them, Bob Toll, whose company builds more than 8,000 houses a year, calls them money in the bank.

    The “Hampton” is Toll’s best selling model. How does it compare in square footage with his best selling model of five or six years ago? “Well, five or six years ago the best selling model had about 3,200 feet in it,” Toll says. “And the standard model of this has, I believe, about 4,600 feet.”

    Fueling this market for larger homes, Toll says, is the fact that the number of families with an income above $100,000 a year has grown six times faster than the overall U.S. population.

    A family of 3.6 people is a typical customer for the Hampton model, which has five bedrooms, five bathrooms, kitchen, a dining room, living room, family room, study, conservatory and a nameless room, simply called a bonus.

    Emphasis mine, and of course that was before the credit bubble burst.
    It still really comes down to the gilded-age levels of income inequality that we’re going through. The 1% has more money than they know what to productively do with.
    I think you’re right that conspicuous consumption is usually at the expense of time, but that’s mostly for families that are income constrained. For these families, they have more money than they know what to profitably do with, and so the engage in large home purchases/remodels/construction because they have copious amounts of both money and time.

  6. Posted by Brahma (incensed renter)

    A similar, but more contemporaneous take from Ezra Klein’s blog on in February, Americans say they want smaller homes. So why do they keep buying bigger ones?:

    Why is this? Sichelman offers one theory. Most Americans might prefer smaller homes, but right now, they’re not doing much buying. Lending is still tight, which means that the market for new homes is still dominated by a small handful people with high incomes, great credit and lots of money for a down payment. Those buyers are usually on their second or third or fourth home, and they’re usually buying homes that are much larger than average.

    So, for now, homes keep getting bigger, not smaller. And it might just be a temporary aberration. Last year, after all, saw the fewest number of new houses built since World War II, and the market was dominated by a relatively small number of people who want large houses. If the economy keeps improving and banks start lending more freely, those trends could change and the new craze for smaller homes might finally catch on. But it hasn’t yet.

    Emphasis mine. If the Urban Land Institute’s hypothesis is correct, this phenomenon doesn’t really have as much to do with low interest rates, as it does wild disparities in income among American buyers.

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