November 2017

Trend watch: Home downsizing continues

Recent analysis by the National Association of Home Builders (NAHB) of data from the Census Quarterly Starts and Completions by Purpose and Design shows that new single-family homes are continuing to decrease in size — a trend that could have a significant impact on the market in the years ahead.

Right now, inventory for small starter homes is low. According to a recent Forbes.com article, the number of starter homes has actually dropped 8.7% in the past year and now make up just 25.9% of the market.Footnote1 Yet the potential market for those homes is rapidly expanding, thanks to the entry of millennials into the market and the growing number of boomers who are beginning to retire and want to downsize.

How these trends could impact the housing market

Millennials and boomers make up the two largest groups of homebuyers today. If the current downsizing and inventory trends continue:

  • Boomer clients who want to downsize may find that it takes longer to sell their current, larger home.
  • Millennial clients may have a tough time competing with boomers who want a smaller home, as they may have less established credit history and funds. If they make multiple efforts to buy but are not able to close, it's possible they could get discouraged and put home buying on the back burner of their financial priorities.

As noted above, home construction will most likely follow the downsizing trend to accommodate the growing demand, which may go a long way toward alleviating the low inventory issue in the years ahead.

 

Sources:

1"Double-edged sword: Home prices keep rising, home inventory keeps falling," Forbes.com
"Baby boomers are making it harder for millennials to buy homes," BusinessInsider.com
"Baby Boomers, downsizing for retirement, create niche real estate market," curbed.com
"New single-family home size continues to trend down," eyeonhousing.org
"New homes continue downsizing trend," Realtormag.org

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