Builders Shift Away From Luxury Homes To Target The Middle Of The Market

Since the end of the recession, home builders have focused on the luxury market, building larger and more expensive homes for more affluent buyers. Entry-level homes have become more expensive and harder to find.

RCLCO reports that this may be changing. Luxury home prices have softened, which indicates that builders are starting to construct “missing middle” products. The homes have lower price points and smaller floor plans and appeal to younger first-time buyers and downsizing Baby Boomers.

According to data from RCLCO, the median new home size shrunk to 2,400 square feet in Q4 2016 from the Q3 2015 peak of 2,488 square feet. Also, the average new home price slowed to 3.4 percent in 2016, the lowest annual increase since 2011.

Though underlying constraints, such as strict mortgage financing standards and escalating costs, remain largely unchanged from the beginning of the recovery, strengthening demand drivers from the aging of millennials and baby boomers, along with rising household incomes for average Americans, have increased the relative appeal of “missing middle” product options for builders.

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