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New real estate markets are shrinking. But it's the houses that are getting smaller:
Through a series of maps and graphs, we can understand why new homes are the smallest since 2010. Most importantly, smaller homes mean cheaper homes. Although square footage fell by 4%, prices fell by 6%.
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Real Estate Markets
We can start with several housing price maps from the New York Federal Reserve that allow us to compare annual changes in housing prices. My “brown” maps illustrate the latest drop in housing prices. Soon, however, the maps become increasingly blue.
Housing prices fell before and during the Great Recession (December 2007 to June 2009):
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However, in January 2012, average prices barely decreased:
When we reached 2017, the trend changed, with a bluish map prevailing for several years:
Looking at April 2022, we see that prices have risen by an impressive 19.3%:
Since then, at a reduced rate, they have continued to rise:
Our bottom line: supply and demand
Explained by NY Times For economic, demographic and regulatory reasons, the response from tiny homes is predictable.
It's the classic of supply and demand.
Initially, on the demand side, even with the rise in prices, there were more millennial buyers. During these years, we have had low mortgage rates and a pandemic-induced hunt for more space. Meanwhile, however, we have seen a decrease in the supply of existing homes. As a result, with the decrease in supply and the increase in demand, we saw an increase in average house prices:
But predictably, after the rise in mortgage rates, prices moved into territories where potential buyers could not enter. Recognizing the threat, builders responded with smaller homes, which reduced their own land, labor and capital costs. As the increase in supply brought down the equilibrium price, we ended up with an increase in quantity demanded:
Moving from graphs to life, we saw the average home size and price shrink.
My sources and more: Fortunately, two articles, here and here, converged to inspire today's post. But then, at economic life, our previous post added to the image. And finally, like me, you'll be able to enjoy the full animated sequence of the New York Fed's housing price maps.
Much smaller than the average new home, our featured image of NY Times is an increasingly popular 400 to 600 square foot home.