A shift in speculatively built (or spec) home building toward smaller lots continued despite the pandemic-triggered suburban flight and presumed shifts in preferences toward more spacious living. The steadily rising share of smaller lots reflects unprecedented lot shortages confronted by home builders during the pandemic housing boom, as well as their attempts to make new homes more affordable. Close to two thirds (65%) of new single-family detached homes sold in 2023 were built on lots under 9,000 square feet, which is less than one-fifth of an acre. According to the latest Survey of Construction (SOC), this is the highest share on record and reflects stark changes in the lot size distribution over the last two decades. In 1999, when the Census Bureau started tracking these series, less than half (46%) of new for-sale single-family detached homes were occupying lots of that size.
The share of lots smaller than 7,000 square feet (or 0.16 of an acre) reached 40% in 2023 — another record reading. Only 28% of new single-family detached spec homes were built on lots that size in 1999.
A persistent shift towards smaller lots, however, is a more recent phenomenon. The share of lots under one-fifth of an acre was fluctuating around 48% until 2011. It was only during the last decade that the share rose rapidly, from 50% in 2011 to 61% right before the pandemic and gained an additional 4 percentage points during the last four years.
A closer look at the lot size distribution since 2010 shows that most dramatic shifts took place at the lowest end, with lots under 0.16 acres increasing their share by 13 percentage points. In 2010, 27% of all sold single-family detached homes occupied lots under 0.16 acres, and an additional 20% were on lots between 0.16 and 0.25 acres. Fast forward to 2023, these shares increased to 40% and 25%, respectively.
At the other end of the lot size distribution, the share of spec homes built on larger lots exceeding half an acre shrunk from 14% in 2010 to 9% in 2023. The share of lots measuring between one-quarter and half an acre declined from 24% to 18% over that time span.
The Pacific division where densities are high and developed land is scarce has the smallest lots, with half of the lots being under 0.14 acres. The bordering Mountain division also reports typical lots smaller (0.16 acres) than the national median.
The analysis above is limited to single-family detached speculatively built homes. Custom homes built on an owner’s land with either the owner or a builder acting as the general contractor do not involve the work of a professional land developer subdividing a property. Therefore, in the case of custom homes, lots refer to an owner’s land area rather than lots in a conventional sense. Nevertheless, the SOC reports lot sizes for custom homes and shows that they tend to have larger lots. The median lot size for custom single-family detached homes started in 2023 is one acre.
For the regional analysis, the median lot size is chosen over average since averages tend to be heavily influenced by extreme outliers. In addition, the Census Bureau often masks extreme lot sizes and values on the public use SOC dataset making it difficult to calculate averages precisely, but medians (as the midpoint of a frequency distribution) remain unaffected by these procedures.
-NAHB
How Numb We Have Become
EPAB President’s Message
Jaime Gonzalez, PresidentEl Paso Association of Builders
Is it me? Or have we become desensitized to the events that unfold around us?
It seems like our senses get hit with news and information from all sides, constantly bombarded with unrelenting flashing lights, news, events, extreme weather announcements, war, assassination attempts, congressional hearings, black Friday sales, 4th of July fireworks, phone calls, texts, chat groups, social media postings, e-mail, spam mail, junk mail, voice mail, deadlines, bills, appointments, it doesn’t stop!
What happened? When did we become addicted to everything?
I confess, I am guilty of being addicted to, and 100% dependent on a device that does everything, including phone calls. To the point that I feel naked when I don’t have it with me. And now, just like in the movie, I can talk to it and the darn thing will answer me! I am pro technology. To a certain extent. But I am more pro humanity. With the constant tsunami of information, it is easy to miss the importance and significance of events unfolding around us.
Regardless of your political affiliation, the events that have taken place in the past weeks are of historic importance. They will undoubtedly change our future.
However, despite their implications, they are yesterday’s news. We move on from one subject to another like hummingbirds. We need to slow down and let things soak in. No matter what happens this November, the world will change. I truly hope the change is for the better.
I know its not realistic for anyone who is active in society to unplug from the daily grind, and it is important to know what’s going on in the world, if for no other reason, but to try and forecast what’s coming our way. But, we need to take the time to enjoy the things in life beyond the screen. Enjoy the beautiful things in life without rushing to capture them in a digital picture. To channel the movie “Good Will Hunting” we need to experience what it smells like in the Sistine Chapel.
Every once in a while, let’s slow down, smell the roses and appreciate our blessings.
Executive Message
Pray for Ruidoso, offer a hand use caution
By Ray AdautoExecutive Vice President, EPAB
Having to deal with politics and politicians is getting more complicated and some say more frustrating every year. In our recent TAB meetings this topic was front and center due in large part to a changing statewide political move ousting incumbents or seeing incumbents leave the legislature.
At least thirty-four and as many as forty new legislators will invade the Capitol next session, and that means educating the newbies into the needs of housing in Texas. Many will be altruistic, blinded by the surroundings and the number of people seeking their newfound approval. Some will listen, and that is why we must be present and in front of them every day of the session. Our lobby team has a lot of work, even with the absence of Ned Munoz, an eighteen-year veteran of the lobby wars. A search is being conducted for the position. Ned is heading up the Texas Cable Providers Association. Our best wishes have been relayed to him.
Our upcoming Membership meeting will be timely.
The recent decision by President Biden not to run, coming a week after the near assassination of former President Trump, doesn’t give anyone the warm fuzzies. Add Biden’s “decision” to not run, putting Harris in without a single vote, all shakes the confidence in the economy. Being in limbo as a country, and divided politically, doesn’t give us the resolve that we will be able to get out of this economic slump quickly. Inflation is killing the economy, confidence is low. And with the lack of confidence comes extremists. Our guests will be asked about how they see housing going forward. Should be interesting.
New Homes Sales Soft
Elevated mortgage rates continue to keep buyers on hold, as new home sales remained relatively flat in June.
Sales of newly built, single-family homes in June fell 0.6% to a 617,000 seasonally adjusted annual rate from a slight upwardly revised reading in May, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in June is down 7.4% from a year earlier and is the lowest pace since November 2023.
“Many potential buyers are remaining in a holding pattern due to elevated mortgage rates that averaged near 7% in June,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Wichita, Kan. “However, moderating inflation suggests lower interest rates in the months ahead and that should bring more buyers off the sidelines.”
“Though new home inventory in June remained elevated at a 9.3 months’ supply at the current building pace, there is still a long-run need for more construction because existing inventory remains relatively low,” said Jing Fu, NAHB director of forecasting and analysis. “Due to a lack of resale homes for sale, the combined inventory for new and existing single-family homes remains lean at a 4.7 months’ supply, according to NAHB estimates.”
A new home sale occurs when a sales contract is signed, or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the June reading of 617,000 units is the number of homes that would sell if this pace continued for the next 12 months.
New single-family home inventory in June remained elevated at a level of 476,000, up 11.2% compared to a year earlier. This represents a 9.3 months’ supply at the current building pace, which has been supported by the ongoing shortage of resale homes. Of the new home inventory, 102,000 are completed ready-to-occupy homes, up 50% year over year. This segment represents 21% of total inventory.
The median new home price was $417,300, up 2.5% compared to last month, and remained essentially flat compared to last year.
Regionally, on a year-to-date basis, new home sales are down 5.5% in the Northeast and 6.7% in the South. New home sales are up 25.5% in the Midwest and 5.7% in the West.
What Buyers Expect vs Actual Prices
There is a major gap between buyers’ expectations and home prices, according to recent surveys from NAHB and the U.S. Census Bureau.While 38% of buyers expect to pay less than $250,000 for their next home, only 5% of homes that started construction in 2023 are actually priced under $250,000.
In contrast, the share of new homes being built that sell for above $250,000 is often far greater than the share of buyers seeking homes in that price range.
For new homes priced below $250,000, the red bars are longer than the blue bars, indicating that the share of prospective and recent buyers exceeds the share of new homes being built in those price ranges. Above $250,000, the opposite is true. The blue bars are longer than the red bars, indicating that the share of homes being built exceeds the share of buyers in the market at those prices.
While existing homes in the starter market have traditionally consisted of the bulk of sales for buyers with modest incomes, the supply of homes in the resale market have been running at historically low levels for several years and prices of existing homes have been setting record highs. Indeed, the median price of an existing home in May was well over $400,000. A major part of the reason for this limited existing inventory is due to the interest rate “lock-in effect,” where home owners are reluctant to sell their home because their current mortgage rate is well below market rates.
Another large part of the explanation for the actual versus expected price mismatch is the cost of new home construction. Residential construction wages continue to rise. Although prices of many residential building materials have been stable recently, the stability comes after massive increases in the two years following the onset of the COVID pandemic. A shortage of lots has been a chronic issue since the home building industry started to recover from the Great Recession.
Moreover, regulatory costs can be substantial. NAHB’s latest study on the topic shows regulation accounting for $93,870 of the cost of an average new single-family home. The largest regulatory cost impact, $24,414, comes from changes to building codes over the past 10 years. This is followed by $12,184 in fees paid by the builder after purchasing the lot, $11,791 in regulatory costs incurred by the developer during site work, $10,854 in the value of land that must be purchased and dedicated to the government or otherwise left unbuilt, and $10,794 in required architectural details that exceed what the builder would ordinarily do.