Dive Brief:

• Single-family home sizes are shrinking as homebuilders shift their focus to constructing entry-level homes and townhouses, according to the National Association of Home Builders, despite a slight uptick in square footage during the fourth quarter.

• The average square footage for new single-family homes during the fourth quarter was 2,661 square feet, up from 2,602 in the prior quarter. The average single-family home size is 11% ahead of the cycle low.

• The overall downward trend in single-family home size is expected to continue and is evidence that the post-recession focus on larger, higher-end homes has largely abated in favor of producing the necessary inventory to entice young, first-time buyers into the market.

Dive Insight:

While single-family home sizes, overall, are getting smaller, builders are beginning to add more inventory to the market, suggesting that they are producing stock to meet the needs of price-sensitive first-time homebuyers.

Single-family housing starts rose 1.9% to 823,000 from December to January and are 6.2% ahead of the year-ago mark. The multifamily construction sector, which includes townhouses, fell back 7.9% in January month-over-month but was up 25.7% for the year.

Although the market needs more entry-level inventory to relax price pressure on current stock and spur purchasing activity among the growing group of millennials seeking homes, there are concerns that rising mortgage rates, elevated home prices and lot and labor shortages could widen the affordability gap.

Housing affordability sank to an eight-year low in the fourth quarter of 2016, according to the latest NAHB/Wells Fargo Housing Opportunity Index, with new and existing homes sold during the period affordable to 59.9% of households earning the U.S. median income compared to 61.4% during the third quarter.

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