New homes are finally selling again — and what's hot among the buyers isn't what you might expect.
Sure mortgage rates are low. But due to tight lending standards, bigger homes are the selling sweet spot in the new-home market, because more established buyers are the ones who can qualify for a mortgage or afford to pay cash today, census and builder data show.
New-home buyers want energy efficiency and practical features. They don't want fancy community amenities that raise association dues, according to results of a buyer preference survey out this week at the National Association of Home Builders conference in Las Vegas.
Formal rooms — dining and living rooms — are out and "flex" rooms are in, says Scott Thomas, national director of product development for one of the largest homebuilders, PulteGroup (PHM) in Bloomfield Hills, Mich.
Today new-home buyers are "focused on energy efficiency and sustainability," said Diane Morrison, vice president of sales and marketing for builder Ryland Group (RYL), in Westlake Village, Calif.
It's good for new-home builders, Morrison says, as green construction and energy efficiency features are hard to find in existing homes.
Construction starts on all types of new U.S. homes rose 28% in 2012, boosted by a 12% surge in December, a Commerce Department report shows. December's annual pace of 954,000 housing starts was the highest in more than four years, with all regions of the country showing gains. And builders received permits for 813,400 units in 2012, up 30% from 2011.
Jobs To Do Gary Painter, an economist and University of Southern California professor, expects the new construction market to "get steadily better." But he says we need an improving job market to help fuel demand.
Additionally, Painter says tight credit "is one of those things that will keep the speed of the recovery slow." He says banks are uncertain about jobs data and new government underwriting standards and "in the financial sector, uncertainty is the biggest killer of financial lending activity.
Tight mortgage lending is greatly affecting the new construction data unveiled this week by the NAHB, says Rose Quint, assistant vice president, survey research.
With first-time homebuyers often unable to obtain mortgages, what's being built and sold are new homes aimed at "wealthier buyers with access to credit," Quint says.
The NAHB says that based on 2012 U.S. Census data it's analyzed (not full year) the average new home size is now 2,524 square feet, the biggest ever — up from 2,497 in 2011 and 2,381 in 2010.
"That's not what anybody expected," said Quint.
And the average price of a new home rose to $279,000 for those started in 2012. That's up from $270,000 in 2011 and $265,000 in 2010. However, the highest ever was $305,000 in 2006, Quint says.
For data on specific consumer preferences, last summer NAHB surveyed 3,682 people who either bought a new home in the past three years or intend to buy in the next three years. These buyers rated more than 120 features, assigning them a rating of essential, desirable, indifferent or do not want.
What features did buyers rate as essential or desirable? New-home buyers are practical, so the room that got the top rating was ... a laundry room — 93% of buyers want a laundry room, 57% say it's an essential feature and 36% call it desirable.
Practical buyers are asking for a new master bedroom area configuration too, says Pulte's Thomas. So Pulte now offers in some of its Del Webb brand a "snore room" option. It's a small second bedroom connected to the master bath and master closet that enables an owner to escape a snoring spouse, but still access the master bath and closet.
"In focus groups, they don't really want to talk about it," said Thomas. "You have to do individual interviews" to get to the noisy truth about what they really want.
Cost-Savers Sought Energy efficiency also is a high priority for new-home buyers, with 94% rating Energy Star appliances essential or desirable and 89% calling Energy Star-rated windows essential or desirable. Also, 91% of buyers want an Energy Star rating for the whole home, with 28% calling it essential and 63% desirable.
"I believe energy efficiency and sustainability were trendy ideas to start with, but (they've) now become a way of life," Morrison said.
And the practical nature of buyers carries over to the garage and exterior too. Quint says that for the first time NAHB asked buyers about garage storage ... and it made it to the most-wanted list with 86% of buyers rating it as essential or desirable. And 90% of buyers rate exterior lighting as either essential or desirable.
What do buyers reject? Well in keeping with their desire for energy efficiency, 43% reject a two-story family room and 38% don't want a two-story foyer, notes Quint.
Buyers also are turning away from expensive community amenities that necessitate high association dues, says Quint. "Four out of five do not want community features," said Quint, with 66% rejecting a golf course, 56% rejecting high-density communities, 48% not wanting a gated community, and 44% rejecting mixed-use communities.
Ryland's Morrison noted: "With master plans, the types of things buyers are willing to pay for have changed. There is demand for open spaces and hiking trails, amenities that are a little less expensive.
Space directly around the home is important too. Pete Reeb, a vice president with John Burns Real Estate Consulting, in Irvine, Calif., says in a January report that in San Diego over the past decade the fastest selling new home projects had lot sizes from 5,000 to 6,999 square feet. These sold from 45% to 51% faster than the market as a whole. And he notes that these homes were priced significantly higher than homes with smaller lots.