Largest U.S. home builder pivots toward smaller homes

This blog recently looked at a shift in the U.S. housing market that has seen newly built homes growing larger and more expensive. Buyers have not only been looking for more space, but they have also been seeking more features, such as additional bedrooms, bathrooms and larger garages, which can significantly increase both the market price and replacement cost of a structure.

The National Association of Home Builders (NAHB) cited data from the Census Bureau showing that the sale price for a new home built in 2013 averaged $318,000, up almost 30 percent from four years earlier. Over the same period, the average size of new residential properties increased by more than 10 percent.

Entry-level homes: ‘the next segment of the market to recover’?

However, one construction firm is betting that it is time to take a new approach. D.R. Horton, the nation’s biggest builder of residential properties, is bucking the trend toward high-end homes by creating a new brand that will focus on producing entry-level houses.

According to CNBC, the new Express Homes will offer residential properties in the $120,000 to $150,000 range, with an initial focus on Texas, Florida and Georgia. There will reportedly be no options or upgrades available on these properties. D.R. Horton CEO Donald Tomnitz told reporters he believes the new business will be able to hit “aggressive targets” in 2015 once the new product line is fully rolled out.

“We wouldn’t be getting into Express Homes if we didn’t think it was the next segment of the market to recover,” Tomnitz said, adding that he expects to see “some encouragement from the government in terms of trying to get more people into entry-level homes.”

The housing demand that D.R. Horton is hoping to meet is from credit-dependent buyers who were unable to make purchases when prices were lower. At the time, the market was largely being cornered by investors who were eager to pay in cash and put properties back on the market as rental units. Tight credit standards also played a role in shaping this situation.

Changing circumstances mean that D.R. Horton is making “the right move,” according Stephen East, senior managing director of the research firm ISI Group. Speaking to CNBC, he explained that “the first-time-buyer segment is getting access to more credit, which will lead to more demand for this low-entry level product.”

Insurance carriers need to be able to estimate replacement costs for homes of all sizes

Because high-end buyers came to make up a larger share of the market as first-timers and those with low incomes were less able to participate, it was logical for builders to tilt toward high-value homes in recent years.

However, now the situation may be changing somewhat, and buyers may soon have a more diverse range of options. While Express Homes may lead some companies to expand their product lines, others could choose to remain focused on larger properties, which continue to sell. For instance, CNBC notes that Pulte Homes remains focused on high-value homes.

In this environment, insurance carriers need to have the capability to accurately calculate replacement costs for houses of any size or style. To fulfill ITV and collateral value needs for residential properties, our solutions offer a single valuation system that can calculate home replacement costs for the average two-bedroom starter home to one designed by a famous architect—and everything in between—accurately and easily.