Volume 13, Issue 6 - July/August 2012

TrendTracker

No Rabbit Hutches in the U.S.
Home Sizes Here Not in Permanent Decline
by Michael Collins
mcollins@jordanknauff.com

When a European diplomat visited Japan in the early 1980s, he famously remarked that the Japanese people were workaholics living in rabbit hutches. The Japanese took great pride in the former attribution but were greatly insulted by the notion that they lived in tiny homes. This comment so injured the Japanese psyche that, when I studied in Tokyo a dozen years later, that diplomat’s comment remained part of the national conversation.

Increases Then Decreases
It was probably this experience that has caused me, over the past several years, to reject the notion that we are headed for an era of smaller homes in this country. Indeed, home sizes increased from roughly 1,400 square feet in 1970 to roughly 2,700 square feet in 2009. This steady upward progression saw brief reversals when recessions pushed the average size of homes back downward out of economic necessity. In the recession of 1982, the average newly built home was only 1,710 square feet in size. In general, though, homes grew in size until they peaked in 2009. By 2010, average home sizes had dropped to 2,135 square feet, according to the U.S. Census Bureau. That 565-square-foot decrease is extremely meaningful to fenestration companies. A decline of that magnitude probably means the home has shed one interior door, one closet door and two or three windows. Depending on the layout of the home, a drop of that size may also eliminate a sliding door or similar entry door.

Proving the Experts Wrong
In 2010, housing economists began making the case that homes would continue to shrink. While they acknowledged that past recessions had pushed down average home sizes temporarily, they believed that this time it would be different and that homes would continue to get smaller. Their reasons included the difficulty of obtaining mortgage financing for a large home. Another critical factor included the prevalence of young or first time buyers who tend to purchase smaller homes. A third key factor that typically was mentioned was the desire for more energy-efficient homes. Recently, the U.S. Census Bureau released data confirming that, in fact, home sizes have not entered a permanent decline. In fact, home sizes rose by roughly 100 square feet from 2010 to 2011. Now, that is not as much as they had fallen, but when predictions have been made that home sizes are in permanent decline, an increase in size of 4.5 percent is very noteworthy.

Needless to say, improvements in the employment picture and the overall economy deserve a portion of the credit for the increase in average home size. Builders report that other factors included the low cost of home lots and the relatively low cost to build homes. The abundance of inexpensive lots allows builders to sell homeowners “more home” for their money. Other factors that play a role in the increase in average home sizes are the need for many baby boomers to create a multi-generational home that allows their parents to live with them in their advancing years. Such arrangements have been commonplace in other countries for centuries but they are relatively new to this country. Dialing in all of the various factors that lead to the trend in average home size, we maintain our previous position that home sizes will return to their long-term pattern of increasing steadily. It appears we’re safe from residing in rabbit hutches for the time being.

Michael Collins is an investment banker with Jordan Knauff and Co. He specializes in mergers and acquisitions in the door and window industry.


DWM

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