REAL ESTATE TRENDS...An About-Face for McMansions

KRIS HUDSON/THE WALL STREET JOURNAL

Is the McMansion back? Or is the first-quarter record high in the median size of newly built, single-family homes a statistical blip?

Many economists are opting for the latter, given trends in the broader housing market, including construction of a greater number of smaller, affordable homes.

The median size of a home built in the U.S. in the first quarter registered 2,521 square feet, up 76 square feet, or 3%, from the fourth quarter, according to Commerce Department data released Tuesday. It was the first increase for that measure after three consecutive quarters of decline.

Robert Dietz, an economist with the National Association of Home Builders,suggests that last quarter’s increase is due more to a smaller amount of housing construction in the first quarter relative to previous quarters than to a return to a market focused on megahomes.

“I think it is due to the fact that the total amount of quarterly single-family (construction) starts was lower than prior quarters, thus rolling back some of the market expansion that was causing median size to level off,” Mr. Dietz said Tuesday in an email.

He added that April’s 20.2% surge in the pace of U.S. home-construction starts, as well as expected gains in housing construction for the rest of this year, “should cause size to level off” going forward.

Still, Americans’ taste for increasingly larger new homes doesn’t sour easily. Median home sizes in the U.S. have generally risen over the decades, as buyers have favored adding more rooms and larger garages.

The big-home trend accelerated in the years since the downturn, as builders catered to better-heeled buyers who could qualify for loans to buy new homes. Meanwhile, entry-level buyers remain largely sidelined by tepid wage and job growth, mounting student debt and stringent mortgage-qualification standards.

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The market has slowly shifted in the past year to allow for the gradual return of entry-level buyers, who tend to buy smaller, less expensive homes. Hiring and wages have improved, and federal regulators have moved to slightly loosen mortgage-qualification standards and reduce some costs of Federal Housing Administration-backed loans.

That contributed to a 7.6% increase in the number of construction starts for single-family homes in the first four months of this year in comparison to the same period a year earlier. It is likely that expanded volume included an increasing number of smaller, less-pricey homes.

Executives of Meritage Homes Corp. said Tuesday at an investment conference hosted by J.P. Morgan Chase & Co. that it is turning some of its focus to the entry-level market. Meritage typically sells homes priced around $387,000, well in excess of entry level in many parts of the U.S.

“We do see this as an expanding market,” Meritage CEO Steven Hilton said regarding entry-level homes. “We saw very strong demand in that segment in the last quarter and even more so over the last two months.”

Mattamy Corp., a Canadian home builder operating in four American states, reports that the average size of home that it builds is slowly receding as its mix of business shifts to include more smaller, less expensive homes. Mattamy sold 194 homes in the U.S. in April, up 90% from a year earlier.

“It’s a business-mix issue rather than a trendline,” said Brian Johnston, Mattamy’s chief operating officer. “We just seem to be selling less expensive homes than we have in the past.”

In addition to the increase in median sizes, an increase also occurred in the average size of newly built U.S. homes in the first quarter. That measure increased to 2,736 square feet from 2,677 in the fourth quarter, Commerce data show.

Even so, Brad Hunter, chief economist with housing research firm Metrostudy, part of Hanley Wood LLC, predicts that new-home sizes will resume their slow decline.

“As you think about the mix (of home types constructed) reverting to the mean, we’ll see more of a pickup in the lower end of the market,” Mr. Hunter said. “As a result, we should start to see the mix of new homes skewing smaller.”