The National Association of Home Builders reported that the median and average size of a new home in the U.S. continued to decline in the third quarter. Third quarter numbers on housing starts show that the median single-family new home size was 2,378 square feet.  The average square footage for new single-family homes declined to 2,518 square feet.

According to the NAHB, this is apparently just part of the normal housing cycle.

“The post-recession increase in single-family home size is consistent with the historical pattern coming out of recessions. Typical new home size falls prior to and during a recession as home buyers tighten budgets, and then sizes rise as high-end homebuyers, who face fewer credit constraints, return to the housing market in relatively greater proportions. This pattern was exacerbated during the current business cycle due to market weakness among first-time homebuyers. But the recent declines in size indicate that this part of the cycle has ended, and size will trend lower as builders add more entry-level homes into inventory.”

Unfortunately there is more to the story here that is conveniently omitted. For starters this is not a normal housing cycle. The attached graphic clearly demonstrates that this latest cycle peak in average new home size corresponds with the Fed’s culmination of quantitative easing and intervention in the markets (the magical bubble-blowing machine). It just so happens that average new home sizes peaked just after the Federal Reserve wrapped up its third batch of quantitative easing during which the balance sheet of the Fed grew to roughly $4.5 trillion. If it weren’t for the Fed’s reflation of home prices it is quite possible that new home sizes would still be rising.

New home prices ran up too far too fast, primarily because of QE1, 2 and 3. This is so patently obvious, it’s amazing the NAHB isn’t discussing it. The reason for that should be obvious as well. Many new home buyers cannot afford bigger new homes even if they wanted them. Millennials, as a result of artificially inflated home prices have backed off the ownership theme, and many more are locked into renting due to increased debt. Family size and fertility rates in United States have also declined as wealth and income inequality have spiraled higher. (Thank the Fed again). Many baby boomers have also decided to cash in their mcmansions for smaller homes.

It would be refreshing if the housing industry started discussing what is really going on in the housing market, but that is likely not going to happen anytime soon. The NAHB has a narrative to push and new home builders want/need to move their product. Your magically shrinking new home will likely match the incredible shrinking lot size for U.S. homes, courtesy of the Federal Reserve’s bubble-blowing prowess. As more and more people are discovering, the Fed is simply doing what it does best.

Welcome to the “Recovery”!