Is Bigger Better? Scaling Down The American Dream
|November 20, 2009||Posted by Roshawn Watson under Uncategorized||
Builders everywhere are scaling down home sizes, amenities, and prices. Today’s post-crash buyers are not willing (nor able in some cases) to extend themselves like before, and the impact on the housing market is substantial.
New Home-Buyers Forego the McMansions
No longer are 5000 square feet homes the expected norm for your typical upwardly-mobile middle-class family. Builders are axing private-theaters rooms, and grand “impress the neighbors sized” foyers, and unnecessary fireplaces.
According to the Mortgage Bankers Association, applications for mortgages have hit a nine-year low, plunging a seasonally-adjusted 11.7% in the week ending Nov. 6. New home sales in the U.S. have fallen sharply as well, from 1.3 million in 2005 to 485,000 last year. The latest Census Bureau data suggest that this year’s sales will be even lower: only 294,000 new homes were sold through the first nine months of this year.
Builders believe most of today’s buyers of new homes want smaller and simpler. Note that the average new single-family house peaked at 2,507 square feet in 2007 and has since slipped to 2,392 square feet (per Census Bureau data). Average new home prices are sliding, too, by 16% — to $269,200 — between the first quarter of 2007 and the third quarter of this year, the Census Bureau reports.
The Driving Forces Behind the Shift
Although it is true that Americans have been embracing a new-found frugality in the recession, there is more to this change in consumer preference than meets the eye. In the past, many Americans were clearly overextending themselves financially to purchase homes they couldn’t afford, and mortgage lenders were all to happy to facilitate their indebtedness with a variety of “creative” financing products. As reported previously, 40% of homeowners were overextended. Some of us were completely ignorant while others were speculating on increased property values. The rationalization was if homes are assets, we should borrow to get as much home as possible, so that we can capitalize from the increasing values of our investments. However, the crash has awakened our awareness of the precarious state that all that debt placed us in.
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Image Credit: Atelier Teee
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Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.