Remember the euphoria in U.S. housing leading up to the Great Financial Crisis? Home prices skyrocketed. Back then, the square footage of new homes being built swelled to preposterous McMansion sizes. We know what happened next. Home prices tumbled. Square footage came back down to Earth.
But out of the wreckage, the price spread between new home sales and existing home sales began to widen again, making it harder for entry level buyers to purchase homes.
“Builders have increasingly been catering to the higher end of the market,” explains Hedgeye Housing analyst Josh Steiner in a recent institution presentation. “Why are they doing that when there’s all this demand at the low end? The simple answer is high end buyers can get mortgage credit and low end buyers have a much tougher time. So the market goes to where the customers is.”
We may have reached an inflection point in new construction specifically catering to low-end buyers.
“A growing number of entry level homes are being built and that’s going to help alleviate the supply bottleneck,” Steiner says.
According to our Housing team’s analysis, the share of new homes being built segmented by square footage shows the fastest growth at the low end. In fact, the fastest growing category is new homes being built in the range from 1,4000 to 1,799 square feet which are up 31%, followed by 1,800 to 2,399 square feet, up +16%.
Watch Steiner discuss this new development in the video above.
