Home USA Growth in the American Market but as Prices Rise so Does Square...

Growth in the American Market but as Prices Rise so Does Square Footage

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The American market is showing strong growth right now: sales climbed at the beginning of the year and began to level off in the last couple of months, with 2013 showing the best sales growth since 2006 and the upward trend in prices predicted to slow over the next two years. That’s a good thing, according to Mark Goldman, a real estate expert at San Diego State University, California. ‘It should be measured,’ Mr Goldman told Reuters. ‘We don’t want to go back to stupid money.’

At first glance, the swelling prices we’ve seen over the past few years – 12.4% on prices year-on-year to March 2014 – have inflated more than the housing market.

It looks like they’ve also pumped up the size of the American home, which is now an average of 2, 598 feet – 873 square feet larger than in 1983, and 200 square feet larger than at the peak of the housing bubble.

The Census Bureau’s figures, released earlier this month, show a story that, when you look closer, looks absolutely disconnected from the market. Homes got bigger in good years and bad. They got bigger across the country. They got bigger, whatever else happened, so that in the 10 years from 1983 to 1993 they grew by almost 400 feet on average.

So are Americans just gripped by an urge to build huge houses, or is something else going on? And how does this square with the stories we’re used to hearing about the unreachable prices in New York and other cities, or the people cannily learning to adapt to their 120-square-foot apartments by parking their bikes on the wall and storing their books in custom shelving under the furniture?

One reason is simply that the rich have got richer since the financial crash. ‘If you had a lot of money in the stock market,’ explains Stephen Melman, director of Economic Services for the National Association of Home Builders, ‘it has doubled since 2009.’ At the same time, the housing market has grown – but the rest of the economy hasn’t. There’s been significant income stagnation and in some cases incomes have actually fallen in real terms.

The result of all this is that first-time buyers, a major source of demand for smaller homes, make up less of the housing market than before. Sales of 1, 400 square feet and under homes accounted for 9% of homes built in 2005 and just 4% in 2013-14. The reduction in smaller homes has skewed the average.

At the opposite end of the market, those who did have a lot of money invested have been looking around for places to spend it, and homes have always been a major soak for spare capital. Extremely large homes, of 4, 000 feet and up, accounted for over 9% of new homes in 2013-14; in 2009, they represented just 6.6% of builds.

Homes which are merely large, defined as between 3, 000 and 4, 000 feet, made up 21.7% of builds in 2013, up from 15.6% in 2005.

Between these two trends, the jump in average size is easily explained. Throw in the fact that the American average is further influenced by the ‘McMansion’ developments that went up during the easy-money pre-2008 years and you have the whole story.

If you’re looking for a home to buy in America, then, this isn’t necessarily good news. It doesn’t show that your dollar buys you more house now – if anything, the opposite. Smaller homes are still available, and the less-buoyant market might leave you with routes in, but with demand contracting to meet falling supply there might not be many bargains left amongst the villas.

Les Calvert is the owner an CEO of many internet property and travel related websites including this one and he regularly writes news and articles for his websites, trade magazines and newspapers.