Building Smaller Houses Post Recession

With an Economy that still Languishes Home Builders are Now Turning towards Building Smaller but Still Amenity Rich Homes

By Mark J. Donovan

Since the collapse of the housing market in 2006 home builders, such as Toll Brothers, have been wrestling with how to attract new home buyers. Their most recent post recession solution has been to shrink the size of their new homes while preserving as many of the luxuries and amenities as possible. The results to date seem to indicate that they might have found a viable recipe. With construction costs down from $170 to $100 per square foot, and prices starting at under $220K for their new 2,000 square foot floor plans, initial sales in Las Vegas, Nevada seem to be brisk.

So where are they getting the costs savings, besides shrinking the size of the home? The answer seems to be in the reduction of finished features and fewer internal walls. For example, by reducing the size of baseboard trim or eliminating some types of finishes altogether and allowing the homeowner to add these amenities later, they are able to save costs in the construction of the home. Likewise, by eliminating some internal walls and halls, they are creating larger open spaces within the home and are relying on the homeowner’s choice of furniture to partition the home into different living areas. Other builders are following Toll Brothers moves and seeing similar success.

The jury is still out on whether or not the construction of smaller houses is the long term solution for the American dream and home building market. However, regardless of the long term outcome, it is without a doubt a positive sign to a see a free market and industry clawing its way out of a long and ugly abyss. Readmore »»

New Home Construction Continues to Limp Along in September

By Mark J. Donovan

The Commerce Department recently reported that U.S. home construction for September increased an overall mere 0.3% over the previous month, though up 4.1% from September 2009. Single family home construction drove the overall increase, with an increase of 4.4% in September 2010. New construction permits, however, dropped 5.6% during the same timeframe. The National Association of Home Builders remains negative on the home construction market due to lack of buyers, depressed or still falling house prices, and tight mortgage lending practices.

None of this news should be surprising with 10% unemployment, impending higher income taxes for all, and lack of clarity on health insurance costs in the coming year. Until unemployment starts to drop, and there is clarity on tax and health insurance costs, buyers are likely to stay where they are; on the sidelines waiting and watching the U.S. economy for signs of improvement.

Even when there is clarity and positive signs in the U.S. economy it still may be years before the housing market fully recovers. The bottom line, there is simply years of excess housing inventory on the market or abandon. Until this excess inventory is either consumed or destroyed, home construction will most likely continue to limp along. Readmore »»