New Houses Getting Smaller as Demand Ebbs

Washington, DC, Oct. 26, 2009--Although the supply of new homes is the smallest since 1992, prices remain depressed and its a buyer's market.

Normally, short supply means higher prices. But consumers have been so battered by job losses and falling home equity, many are unwilling to commit to buying.

Mark Zandi, chief economist of Moody's Economy.com, notes that "homes are as affordable as they've ever been," based on household income. However, he says that continuing layoffs and foreclosures will continue to depress prices, which have fallen 32% since their 2006 peak, according to S&P/Case-Shiller's composite 10-city index. 

Zandi predicts that prices will fall another 5% to 10% before stabilizing in the middle of next year.

When the market does start to pick up, which the National Association of Home Builders sees happening two years from now, the landscape will be changed, 

After a long run-up in median new home size, peaking at 2,309 square feet in 2007,home sizes shrank to 2,091 square feet in 2009.

"It's the largest decline ever seen," said NAHB's chief economist David Crowe. Since first-time buyers and their parents, the empty-nesters, will be the dominant demographic groups over the next decade, builders will cater to those groups' more modest needs.

Already, big builders like Toll Brothers have introduced models that look more like cozy carriage homes and four-squares than their usual English manor-style homes.