As the prices of homes continue to soar, many young first-time home buyers are finding affordable starter homes back on the market for the first time in several years in major housing markets.
Following the success this year of D.R. Horton Inc.’s low-cost Express brand, national firms including Tri Pointe, Taylor Morrison Home Corp. and Meritage Homes Corp. are testing cheaper offerings in markets from Colorado to Florida to California, Bloomberg reports. Builders had shifted away from entry-level buyers following the housing crash and instead focused on developing larger, more profitable homes during the recovery that began in 2012 amid an increase in land and labor costs.
The push to build bigger may be slowing. The median size of a new single-family home was 2,445 square feet (227 square meters) in the third quarter, little changed from a year earlier, after rising 17% over six years from a low in 2008, according to an analysis of U.S. Census Bureau data by Robert Dietz, an economist with the National Association of Home Builders.
“The recovery in the move-up segment is getting long in the tooth—there are only so many buyers who can pay $400,000 and above,” says Drew Reading, a homebuilding analyst for Bloomberg Intelligence. “The main concern in 2016 and beyond is that affordability is becoming a bigger issue.”
D.R. Horton, the nation’s largest builder, now collects 14% of its revenue from its Express brand, which it started last year and plans to expand in 2016 to most of its 79 markets. LGI Homes Inc., a Texas-based builder of entry-level houses that became a public company two years ago, has been the best-performing homebuilder stock this year. It reported an 88% increase in revenue in the third quarter from a year earlier.
