Daly Appraisal Newsletter – Demand for Medium-Size Housing Swings Back
Illustrating the power of real estate appraisals to provide valuable property and market insights
Sometimes we discover a surprise gem when appraising commercial property, such as this organ now located in a Waltham retail store. It bears the inscription, “New England’s Premier Organist John Kiley played this organ for the Boston Red Sox at Fenway Park for over twenty years.” Mr. Kiley was organist from 1953-1989. He passed away in 1993.
Here’s a sampling of some of our recent appraisals:
- Retail and office building in Waltham Center
- An industrial and automotive building in Waltham
- A 1,200-SF parcel in South Boston approved for a 3-unit condo complex
- An undeveloped vacant lot in Dorchester
- A condominium complex being developed in Westfield
- A used car lot in Springfield
- A 20,000 SF Class A office building in West Springfield
- An ice cream parlor & diner in Hampden
- A hair salon & upstairs apartment in Medford
Demand for Medium-Size Housing Swings Back
By Linda Sakelaris
Housing developers have spent the past decade building ever-larger homes just as the average U.S. household unit was shrinking.
This demographic upset has negatively affected existing home sales in the Northeast, where sales of existing homes fell 2.9% in July although existing home sales were up 2.5% nationwide.
Problems in New England have been blamed on an inadequate inventory of medium-size homes. The shortage has driven up prices, resulting in higher mortgages and greater obstacles for middle-income buyers.
Builders, however, appear to be shifting focus. Last year, the average size of new homes fell to 2,320 median square feet (SF) from 2,500 SF in 2015. This indicates that developers may address the “missing middle housing,” a term coined by California architect Daniel Parolek. Middle housing is affordable to middle-income buyers and includes duplexes, courtyard apartments, bungalow units and multiplexes as well as starter homes.
Since the 2008 economic downturn, the percentage of newly constructed homes larger than 3,000 SF has increased from 19% to 30% of new homes, according to Disruption Demographics, a recent report by real estate advisory company RCLCO.
Since mega-size homes go against the trend of shrinking household size, new home production appears to be moving in the opposite direction of U.S. demographics, according to the RCLCO report.
Increase in Non-Traditional Households
Demand for medium-priced homes is currently coming from two major classes: baby boomers and millennials. Married households without children and single households are expected to account for 69% of household growth in the next 10 years.
Baby boomers, with assets and established purchasing power, are beginning to downsize, and now seek smaller solutions that are flexible and modern. This group is an important customer for the home market since they will likely use their current home value to purchase another home.
Millennials, while still building their earning power, are capable of entering the home market but developers will need to properly align home products with prices to meet this demand, the RCLCO report states. Compared with prior generations, millennials are having fewer children, driving average household size down.
If the needs of these two buyers are not addressed, the size of the new housing market could decline, experts say
What Do These Buyers Want?
Consumer preferences have changed in the past decade. While the detached, single-family home remains the most desirable product, at least 15% of buyers would now consider an attached townhouse or plex product.
Both boomers and millennials want to be close to activity and mixed-use development, such as shopping, services, jobs, shared open space and a walkable neighborhood.
Older buyers in particular are attracted to master-planned communities for the sense of community, safety and maintenance services.
Also, in demand are open floor plans that meld multiple rooms. While entertaining, guests in the kitchen can see guests in the living room, a system that requires design continuity that interconnects the spaces.
The dining room, which has been less pronounced in recent construction, is coming back but without the formality. Today’s dining rooms are comfortable and friendly, with perhaps a comfortable, well-lit adjoining living space.
Wall-free interiors first became popular in the 1970s, representing freedom from the succession of small rooms often found in older New England homes.
While it remains a popular concept, there is some indication that buyers wouldn’t mind a few privacy walls here and there. “Buyers are moving away from uninterrupted views,” Boston real estate agent Loren Larsen told the Boston Globe in March. Some spaces, some items, deserve a little privacy.