A while back I showed that the average income of first-time home buyers has risen since the last decade’s housing boom ended. Rather than indicating an improvement in first-time buyers’ earnings, the finding reflects the increased difficulty of becoming a homeowner in the first place. Whereas mortgage lending was available to people with a broad range of incomes during the housing boom, first-time buyers have since become a more financially select group.
As a follow-up on the previous story, I used data from the American Housing Survey (AHS) to see how the size of first-time buyers’ homes has changed over time, and how it compares to the size of everyone else’s homes. These homes include existing homes as well as newly constructed ones. The findings with respect to home size further substantiate the story with respect to income in the earlier post.
During the housing boom developers introduced ever-broader floor plans, and the average size of American homes increased, affecting both first-time buyers and everyone else similarly. In 2001, the average size of homes bought by first-timers was 1,614 square feet and the average size of all other homes was 1,740 square feet. by the end of the housing boom, in 2007, the former had grown to 1,693 square feet while the latter had expanded to 1,831, increases of 4.9% and 5.2% respectively. Although first-time buyers’ homes remained slightly smaller than everyone else’s on average, the gap between the two remained unchanged.
It is what happened since 2007 that is interesting, though. Because new construction all but halted during the housing bust, developers’ expanding floor plans could no longer drive home size growth. In fact, the average home size stopped growing, though not the homes bought by first-time buyers. In 2013 the average size of all but first-timers’ homes was 1,819 square feet, essentially unchanged from what it had been in 2007. On the other hand, the average size of first-time buyers’ homes continued to grow: from 1,693 square feet in 2007 to 1,845 in 2013.
It is precisely the continued growth of first-time buyers’ average home size during the bust, while home sizes were otherwise stagnant, that mirrors the story told with respect to income in the previous blog post. As tightening credit constraints cropped the ranks of would-be first-timers, those who remained able to buy were more financially capable, and tended to buy larger homes. Thus, the rise during the bust reflects the gradual attrition of the least financially capable would-be buyers.
Substituting square footage with the number of bedrooms reveals a similar story. The average home bought by first-timers tends to be larger than the average of all other homes, possibly because first-time buyers are likelier to have more children at home. However, it is how the difference between the two groups evolved over time that is important. The difference in the average number of bedrooms between first-timers’ homes and everyone else’s decreased during the housing boom, as access to mortgage lending became broader, but it increased substantially thereafter, providing yet another indication of the changing nature of first-time buyers.
All in all, the findings with respect to home size confirm that first-time buyers have become a more financially select group. Reiterating from the previous story: “this is a situation in which the glass is half full and half empty. Given the role of irresponsible lending practices in bringing about the housing boom and bust, it is a good sign that the current cohort of first-time buyers is more financially robust. At the same time, the notion that homeownership is slipping out of reach for a growing share of the population is an uncomfortable one, especially if the trend continues. Do we really want homeownership to become a privilege rather than a choice?”
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Methodology:
We assembled data from the 2001-2013 bi-annual AHS surveys (the latest available AHS data is currently from 2013; 2015 data will become available later this year). We identified homes owned by first-time buyers as owner-occupied homes whose residents had moved in during the preceding 24 months period, and who reported not having ever owned a home before. We conducted the analysis at the housing unit level, weighting the sample to represent the national population.
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