WASHINGTON, DC — A growing segment of the nation's housing market - first-time home buyers - is contributing to an increase in demand for smaller, less-expensive new homes, according to a new study whose findings were made public last month by the National Association of Home Builders.
The study, entitled Characteristics of New and First-Time Home Buyers, points to a marketplace of home buyers adapting to tougher economic times, with homes that are smaller and contain fewer luxuries.
A separate survey, conducted by the American Institute of Architects, concurs with the NAHB's findings - but notes that kitchens are assuming new functions as other space in today's homes disappear (see related graph, below).
"A new housing market is emerging, and even with the recession in the rearview mirror, we expect the popularity of smaller homes to persist," said Bob Jones, chairman of the Washington, DC-based NAHB.
"Builders are increasingly gearing their homes to the needs of first-time buyers, and we expect the trend to continue in the period ahead as the economy begins generating more jobs and more people in their 20s form households," Jones added.
According to the NAHB, 41% of the 8.4 million households who bought a home between 2007 and 2009 were first-time buyers, up from 35% in both 2005 and 2007.
Although some of the first-time homebuyer activity was fueled by the initial version of the home buyer tax credit in mid-2008, the current trend is expected to continue, as children of baby boomers - members of a generation that is larger than their parents' - move into their household-formation years in the period ahead, NAHB researchers said.
Similarly, the trend to smaller, less-expensive homes is also expected to continue.
According to the NAHB, single-family homes in the U.S. continued to get smaller last year, and the downward trend is likely to last significantly beyond the end of the recession.
From a peak of 2,268 sq. ft. in 2006, the median size of new single-family homes dropped consistently through last year, when the size was down to an even 2,100, the NAHB stated.
In the early 1980s, when mortgage interest rates climbed to astronomical heights, home sizes experienced a similar decline, but only temporarily. Today's downsizing trend is likely to last longer, according to housing analysts.
Jones noted that the current decline in home size can be attributed to factors like the desire to keep energy costs down, the amount of equity in existing homes available to be rolled over into new ones, tighter credit standards, less interest in buying a home as an investment, and the growing presence of first-time buyers.
Among other key study findings:
- First-time buyers had an average age of 34, compared to 46 for those trading up.
- The average income of first-timers was over $67,000, about 30% below the average household income ($97,000) of trade-up buyers. About half of the first-time buyers earned less than $60,000.
- The household size of both first-time and trade-up buyers has been declining, while single-person households have been on the rise.
- First-time buyers bought homes averaging 1,874 sq. ft., significantly below the 2,549-sq.-ft. home purchased on average by those trading up. Some 46% of first-timers bought homes smaller than 1,500 sq. ft.