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2009-03-02 20:19:37

Surprise: New Homes Will Cost More, Offer Less


If you're a home buyer sitting on the sidelines for the deal of the century, you may be kidding yourself. That dream home you're waiting to buy when the housing slump is over is likely to be smaller, plainer, and more expensive later than today's homes are now.

Why? Homebuyers want homes to be less expensive, but what they don't know is that building costs are about to skyrocket.

According to the National Association of Home Builders, some costs associated with building are going down because of lower demand for housing, like labor, gypsum, insulation and lumber. But any material associated with oil is shooting up. In other words, there's a bubble in PVC pipe.

Buyers think time is on their side because demand is currently suppressed by fear, plummeting home prices, and tighter credit. That's created over 11 months of standing inventory waiting to be sold.

But when that inventory's gone, look out.

"It doesn't take an economist to see that when we start building again, lumber, gypsum and labor will be more expensive," says Bernard Markstein, senior economist and director of forecasting for the National Association of Homebuilders.

Builders will build to the market and that means they'll be looking for ways to cut the price of homes. Get ready for even smaller lots, less square footage and fewer luxury materials like Italian marble and Brazilian cherry hardwoods.

So should you buy a new home now or wait? Let's see what history tells us.

More square footage took off with the baby boomers. In 1978, median square footage for new homes was 1,650 square feet. The oil embargo and subsequent recession of the 1970s resulted in smaller homes being built between 1979 and 1982. Square footage grew again in '85 and fell in '95, after the recession of the early 90s.

According to the National Association of Home Builders, a home built in 1950 grew from an average 983 square feet to an average 2,479 in 2007. Since then homes have lost size and value, credit has tightened limiting the number of buyers, and jobs have been lost. That spells smaller housing with fewer bells and whistles.

New home starts, while half as many as at the peak of the housing bubble, are slowly creeping down in size. According to the U.S. Census, the average size of homes started in the third quarter of 2008 was 2,438 square feet, down from 2,629 square feet in the second quarter. Median sizes are also down – from 2,291 in the second quarter to 2,090 in the third quarter, the latest numbers available.

Home builders are trying to make homes more affordable by cutting down size and/or amenities. While smaller may be more efficient, you’re still paying a higher cost per square foot.

Many MLSs list the square footage of homes for sale. Buyers want to know how much they’re getting, so think about that when you resell. There isn’t a field of information for “more efficient,” at least not yet.

So, if size matters to you, then now is the time to buy while builders are sitting on nearly one year’s worth of inventory.

Blanche Evans is CEO of Evans Emedia, Inc. and publisher of The Evans Ezine. As an award-winning journalist, Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and twice recognized as one of the industry's most "Notables."   


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