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Americans still want bigger homes -- even though they should downsize instead

Rick Newman
Senior Columnist

Don’t do it, people!

New research from real-estate data firm Trulia shows that Americans still crave big homes, even after a brutal housing bust proved the perils of overspending on real estate. In a Trulia poll, 43% of people said their ideal home is bigger than the one they live in now, while just 16% said they’d prefer a smaller home. Forty percent said they’re satisfied with the size of their current home.

There’s nothing wrong with dreaming, of course, but the trend toward purchasing ever-bigger homes seems to have resumed after the disruption caused by the housing bust that began in 2006. The average size of a new home has dipped in recent months, according to data from the National Association of Home Builders, but at about 2,600 square feet, it’s still close to record highs, as this chart shows:

Sources: Eye on Housing, Census Bureau, National Association of Home Builders

The Trulia poll results are predictable in some ways. It’s no surprise, for instance, that young people want more space, as do Generation X families with growing kids. But you might think baby boomers on the verge of retirement would be preparing to downsize en masse. Not so. Among boomers, 26% say they want a bigger home, while only 21% want a smaller home. Here’s a breakdown of the Trulia numbers by age:

Source: Trulia

The problem with committing to costly real estate is that the old belief about buying a home being a great investment is mostly a myth, as Mike Santoli and I discuss in the video above. “Owning a home is such a nuisance,” Nobel Prize winning economist Robert Shiller said recently on Yahoo Finance. “It can trap you. You have worries every week.”

Nor does housing offer the high returns that drew in many buyers during the housing boom--but turned out to be ephemeral. The latest data shows that home prices rose 4.6% over the last 12 months, which is about 3% when you factor in inflation. But home buyers must pay for maintenance, bank fees, real-estate taxes and other expenses that can easily turn a home into a money-sucking venture.

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Owning a home still makes sense for many people who are likely to stay in place for a decade or more, since you get to enjoy a place you can customize to your liking, in a neighborhood you presumably like. But even the old buy-and-hold approach to owning can backfire these days. The economy is more volatile than it used to be, with employers quick to shed jobs and send work overseas if that’s more efficient. Workers need to be more agile, so they can move if necessary to find better opportunities. Owning a home can get in the way, especially if you’d have to take a loss on selling just to move someplace where you can get a better job.

Beyond that, there are many reasons to adopt more frugal habits than have been commonplace during the last 40 years, when an expanding economy pushed up wages and living standards for most of the middle class. Wages have been stagnant lately and it’s not clear they’ll pick up any time soon. Many jobs that once provided a middle-class lifestyle are disappearing, and more change is coming as robots and software do work once performed by humans.

Anybody seriously considering paying more for an extra 500 or 1,000 square feet of living space might want to consider the one group of home owners with the worst buyers’ remorse: Those who live in the biggest houses. Among people living in homes larger than 3,200 square feet, 26% want to downsize, according to Trulia. That portion is considerably higher than for people living in smaller homes. Owning a home can still be rewarding, but buyers should beware too much of a good thing.

Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.