Wanted: Small Homes at Affordable Prices

A recent article from the National Association of Realtors’ economists about single women homebuyers surprised me. I was aware that the cohort has been the second largest group of buyers, after married couples, for nearly 20 years. In fact, online lending marketplace Lending Tree reports that single women homeowners outnumber single men owners in every one of America’s 50 largest metro areas.

What I didn’t know is that this group’s numbers have been diminishing, from 27% of buyers in 2006 to 17% in the current market. Despite an enormous amount of press devoted to single female homebuyers, even today, hardly anything has been reported about why their numbers have decreased.

Homebuying Disparities: Women and Affordability

One obvious reason is escalating home prices. Women still earn less than men—79 cents for every dollar that men made in 2019. That difference in earnings makes it even harder to keep up with increasing prices, which, according to the S&P CoreLogic Case-Shiller National Home Price Index, have risen by more than 20% in the last five years.

But it turns out women are also paying more than men when they buy a house. An incredibly comprehensive study from Yale University’s School of Management, which looked at more than 9 million U.S. housing transactions between 1991 and 2017, reveals that women pay about 2% more at the time of purchase. Add the difference in down payments and fees and subsequent higher mortgage payments, and the gap grows to more than 7%.

It would be easy to say that the disparity stems from women being less effective negotiators. But in an article for the university’s publication Yale Insights, Kelly Shue, professor of finance at Yale and one of the study’s authors, cites research on car buying that refutes that assumption. In that study, men and women were given identical scripts to use while buying identical cars, but in many of those interactions men were offered discounts that women were not. Additional research shows that when women attempt to negotiate aggressively, sellers react negatively.

In many cases, however, single women buyers just want smaller homes, also known as homes they can afford.

Most builders already know that women are their primary target market, regardless of whether they’re married or single. They’ve listened to their customers and changed floor plans to reflect a woman’s point of view, such as moving laundry rooms closer to where the clothes actually are or making the owner’s entry a more welcoming place.

In many cases, however, single women buyers just want smaller homes, also known as homes they can afford. A recent report from the Urban Land Institute notes that builders are currently building fewer smaller homes than ever. Before 1999, 16% of new construction homes in the U.S. were 1,400 square feet or less. Since that time, just 8% of new homes built were in that category. New homes 1,800 square feet or less also declined after 1999, from 40% of the market to 22%. Larger homes, over 2,400 square feet, rose from being a third of all newly constructed homes to fully half of the market.

The same report reveals a disconnect between builders and buyers: While surveyed builders agreed that more affordable homes are in demand from a sizable segment of buyers, they believe that the way to achieve attainability is to limit community amenities, provide lower-quality finishes, and locate homes in less desirable areas. An RCLCO survey of consumer preferences, however, shows that buyers prefer the opposite: They want to purchase affordable homes in good locations with better amenities.

Current statistics show there’s an array of these buyers waiting in the wings (for example, 89% of Millennials, according to Apartment List). It will be up to you to find a way to give them what they want.

Access a PDF of this article in Pro Builder's April 2020 digital edition