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THE GARDEN ISLAND
Friday, December 15, 2023 • B3
American homes getting smaller with rising costs Nirav Shah WEALTH OF GEEKS
John Burns Research and Consulting (JBREC) conducted a survey in April to understand how much American homes are shrinking. The study surveyed nearly 300 designers, residential architects, and design-oriented builders. They report a third of detached homes planned and built right now are likely to be under 2,000 square feet. The average size of townhomes will be between 1,500 and 2,000 square feet. As the newly built homes are likely to get smaller, builders have allocated more space to more heavily trafficked areas. Instead of building a formal dining room, the focus is shifting to larger kitchen islands with seating. Also, builders are sacrificing primary bedrooms with walk-in closets and opting for another small bedroom. It is important to note that even though new homes are getting smaller in the United States, they are becoming less affordable. A newly built single-family home had a median price of $415,400 in June 2023. However, in that same month, an existing, similarly sized home was valued at $410,200. Homebuyers must still deal with the 30-year mortgage rate, though, but the builders are unwilling to do them a favor by slashing prices.
According to 2020 Census data, the median floor area square footage for single-family homes peaked in the first quarter of 2015 at 2,519. As of the second quarter of this year, median square footage has dropped to 2,191. Homebuilders have ramped up construction by leaps and bounds to meet the ever-increasing home demand. However, new home buyers are getting less even though they’re paying more. According to Redfin, the median home sale price in America increased from $288,203 to $422,137 — a 46 percent increase between July 2018 and October of this year. Indiana-based homebuilder Estridge Homes recently introduced detached homes that are $50,000 to $75,000 cheaper and 300 to 500 square feet smaller than regular builds. According to The Wall Street Journal, to downsize new units, homebuilders are eliminating extra bathrooms and bedrooms. Zillow reports a 9.5 percent increase in the construction of single-family homes with less than three bedrooms from 2021 to 2022. On the other hand, there was a 13.1 percent decrease in the construction Housing affordability of houses with three or America’s housing afmore bedrooms during the same period. fordability crisis has not
U.S. average mortgage rate falls to the lowest level since August ASSOCIATED PRESS LOS ANGELES — The average long-term U.S. mortgage rate dropped below 7 percent to its lowest level since early August, another boost for prospective homebuyers who have largely been held back by sharply higher borrowing costs and heightened competition for relatively few homes for sale. The average rate on a 30-year mortgage dropped to 6.95 percent from 7.03 percent last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.31 percent. Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loan, edged up this week, lifting the average rate to 6.38 percent from 6.29 percent last week. A year ago, it averaged 5.54 percent, Freddie Mac said. The latest drop in rates is the seventh in as many weeks. Mortgage rates have been easing since late October, when they reached 7.79 percent, the highest level since late 2000. The pullback has echoed a decline in the 10-year Treasury yield, which lenders use as a guide to pricing loans. The yield, which in mid-October surged to its highest level since 2007, has been falling on hopes that inflation has cooled enough for the Federal Reserve to finally stop raising interest rates. Those hopes strengthened Wednesday after the Fed held its main interest rate steady for the third straight time, and its officials signaled that they expect to begin cutting rates beginning as early as next summer. Investors’ expectations for future inflation, global demand for U.S. Treasurys and what the Fed does with its benchmark federal funds rate can influence rates on home loans. “Given inflation continues to decelerate and the Federal Reserve Board’s current expectations that they will lower the federal funds target rate next year, we likely will see a gradual thawing of the housing market in the new year,” said Sam Khater, Freddie Mac’s chief economist.
home. However, this equity-building strategy is unlikely when home prices rise rapidly. The inability to buy homes in the early working years may mean renting for longer. Those purchasing homes later in Retirement savings life will find it more chalLack of affordable houslenging to pay off their mortgage before retireing also significantly impacts an individual’s ability ment. Food, entertainment, and WEALTH OF GEEKS VIA ASSOCIATED PRESS FILE to save for retirement. Harvard University’s Joint Cen- other lifestyle-related costs surfaced suddenly. It has try needs to hire 2.2 million ter for Housing Studies has are also higher in areas with steep home prices. been developing for many new workers through 2024 recently published the years. Many experts beto keep up with the deState of the Nation’s Hous- The overall effect of rising lieve the problem snowmand for homes built. ing 2023 report, suggesting prices can put a strain on a retiree’s budget. This is Another contributor to that in March 2023, purballed since the Great why many Americans nowRecession and has reached the country’s housing afchasing a median-priced a precarious situation. home required mortgage fordability crisis is rising adays want to relocate to Families earning the mepayments of $3,000 a home prices coupled with less expensive regions bedian annual income can no inflation. The median home month. The same report fore retirement. also mentioned that an inlonger afford to buy a home price across the nation The current housing afmore than doubled bein any of the major marcome of $117,000 was fordability crisis in Amerneeded to buy a medikets. tween 2009 and 2022. ica is a matter of concern This housing affordabilWhile the growth of peo- an-priced home. for everyone. Unfortunately, it isn’t A limited supply of availity crisis can be attributed ple’s wages has been modeasy to forecast when to many factors. First, new est, almost every sector of able homes means prices home builds have failed to the economy has been imare steeper. Those looking things will improve. Many experts suggest that one of keep pace with demand in to purchase a home may pacted by inflation. the best ways to deal with local and national markets In many cases, the added need to adjust their budthis crisis is to prepare for many reasons, includcost of living leads to less get. This can impact their retirement savings in many early by accruing savings. ing labor shortages. When savings for home purThe emerging lifestyle different ways. the housing bubble burst chases. concept of Financial IndeWhen home ownership in 2008, a large part of the To mitigate the impact of accounts for a significant workforce involved in inflation, the Federal Rependence Retire Early portion of income, there is (FIRE) can be an excellent housing construction serve has aggressively inshifted to other fields and creased interest rates. This less opportunity to save for option. FIRE practitioners never came back. aim to achieve financial inhas also affected the mort- retirement. Therefore, these homeowners may As a result, when the gage rates, which are didependence and retire have to lead a low-cost life- early by cutting costs drasmarket was ready to rectly associated with the bounce back, it didn’t have purchasing power of poten- style after retirement. tically and maximizing sava sufficient workforce. AcIf the housing market is tial homebuyers. ings during the early stages The single-family homes affordable, it may be possi- of their professional cacording to Moody’s, the market in America also suf- ble for a homebuyer to pay reers. country currently has a shortfall of 1.5 million off the mortgage before With sufficient savings, fers from the growing tenhomes. The National Asso- dency of institutional their retirement. Then, FIRE followers may find they can buy another home dealing with the housing investors to convert sinciation of Home Builders without debt by selling this crisis easier. (NAHB) projects the indus- gle-family homes (SFHs) into single-family rentals (SFRs). In a market that is already strained, converting a sizeable portion of the available supply has not helped the median home value.