The Z Report: A Dramatic Shift to Entry-Level Home Building

The latest edition of The Z Report, published by the research firm Zelman & Associates, demonstrates a dramatic industry shift toward entry-level home building, with 20 percent of for-sale new construction in Q2 2019 representing homes smaller than 1,800 square feet. According to the data, the share of smaller homes within new construction has been on an upward trajectory since 2015.

In fact, the share of new homes with less than 1,800 square feet skyrocketed 165 percent between Q2 2015 and Q2 2019. That represents an annual increase of 28 percent. See how that compares to increasingly larger homes:

• Homes sized 1,800-2,249 square feet saw a 22 percent annual increase
• Homes sized 2,250-2,500 square feet saw an 18 percent annual increase
• Homes sized 2,500+ square feet saw a 2 percent annual increase

So, what does this mean going forward?

From The Z Report:

Like any cyclical industry, the safe assumption is that eventually overproduction will occur. However, we believe that the runway for above-average demand growth at the entry-level price point is quite clear over the next two years, at least, justifying the current path of supply.

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