Bigger is better formula does not apply to real estate market any longer. Many home buyers, especially first-time buyers are choosing smaller, less expensive properties as their future homes. It’s not that they mind extra space, it’s about being practical.
For many it is a choice between paying for rental and owning a home. And if your mortgage payment is close or even lower than your rent and you are qualified buyer, why not. Fixer uppers, short sales, less desirable neighborhood properties are now up and up. It looks though that not only modest income families are looking for smaller homes, people with better paying jobs also shy away from what was known as a “dream house”.
Home buying experience has become less emotional and more practical. It seems as home buyers have become more mature and not give into dreams of luxury. While about ten years ago no one would mention about contingency planning in case of a loss of income today this is a major consideration because real estate investment has lost its golden stability status.
Lending restrictions also play some role in what type of house person can choose. Being more scrupulous, lenders look closely to home buyers financials and do not make mistakes they have been making in not so distant past.
Experienced realtors who understood that trend quickly rebranded themselves from being a “dream maker” to “practical home buyer partner” and make their living on volume rather than on colossal infrequent transactions. Realtor career certainly took a new turn for many and the ability to adapt and reinvent themselves as professionals has become a major success factor.
The number of first-time buyers has been increasing in the last three years and accounts to about 41% of all real estate transactions. This is partially due to tax breaks and the fact that existing many of existing home owners are upside down on their mortgages and not able to enter real estate market, especially if their properties do not fall into category of smaller practical homes.
Some of the recent statistics show that new buyers’ properties average 1,874 ft2 which is quite different from an average housing footage of 2,549 ft2 purchased by those who trade. Trulia reports that only 9% of people have indicated that their preferred home size is over 3,200 ft2. And out of all first-time home owners close to half have purchased properties below 1,500ft2. This has affected the business of residential real estate builders. Many new homes models are smaller than their predecessors with emphasis on energy efficiency and affordability. Basically, what was considered a good American home for a middle class family now is becoming unaffordable luxury.
Young generation of home buyers can’t afford these homes and the mentality of a new generation of home buyers to be is different. Most of young people don’t value a large back yard and a garden like their parents did. Entertainment comes in a digital form and as long as they have enough space for their laptops, dishwashers and a baby crib, they are quite content. They are happy with a fraction of what their parents could afford or build. Young families are not likely to have many children; they simply can afford to have a large family. This could be the most important factor in current residential architecture design and downsizing trend. Although, home builders and social planners like to place emphasis on the eco-friendly living, their claims simply don’t make any sense because the number of people living in a house determines the space requirements and if young families could have afford having 4-5 children in the household, they probably would be looking at something larger than 1,500ft2.
Overall, this small-is-good trend is likely to grow in direct correlation with the decline of America’s living standards. Smaller cars, smaller salaries, smaller goals and now smaller homes – welcome to a new downsized America.