Over the course of the last year, I have noticed that my personal sales history shows that smaller homes are selling much faster than larger homes. I have seen a number of 3 bedroom, 2 bath homes sell in less than 30 days, even in this austere market. And these homes are selling for strong prices, several having appreciated in the last year. One of the small homes that I sold in 2009 set the mark for the highest price per square foot in its Plano neighborhood.
Across the nation, the strength of smaller size homes seems to be consistent. A USA Today article published this morning addresses this topic directly. The article quotes statistics from the National Association of Home Builders noting that this trend has not been overlooked by those who bring new product to the market. The median square footage of homes has dropped about 9%, from a peak of 2300 sq ft in the third quarter of 2006 to 2100 sq ft in the same period of 2009.
I believe there are a couple of factors that cause this trend to occur. First, the general strength of the economy has everyone scrutinizing expenditures, and people are beginning to realize that they can survive on less. The thought pattern goes something like this “We’d love to have the media room, but do I really need it? Perhaps now is not the time – we’ll get that in the next house.” Second, the strongest segment of the market is in first time home buyers. People are realizing that given price levels, interest rates and tax incentives, it make sense to buy a home rather than rent for those who can qualify for a mortgage. First time home buyers have not built up equity over the years and usually start by purchasing smaller homes. The combination of these occurrences leads to smaller homes outperforming larger homes in the current market.
So what’s the moral of the story? If you have been in your first home for the last several years, and are thinking that perhaps now is the time to move up, you couldn’t be more right. Your smaller starter home will yield the best price in the market, and the home that you purchase will likely be discounted from its level of the past couple of years. The market is taking shape to make now the best time to step into a larger home.