Builders Are Building Smaller Homes


Undoubtedly, affordability remains a challenge. For prospective homebuyers, this might entail considering smaller properties within their financial reach. However, there's a positive aspect to this situation: builders are currently prioritizing the construction of smaller homes and providing incentives. This trend expands the array of options available to match your budgetary requirements.

Newly Built Homes Are Trending Smaller

Throughout the pandemic, there was a demand for larger homes among buyers, and builders responded accordingly. They concentrated on constructing spacious residences to accommodate needs such as remote workspaces, home gyms, additional rooms for virtual schooling, and other requirements.

However, given the current affordability obstacles confronting buyers, builders are now turning their focus towards introducing smaller single-family homes to the market. The following graph, utilizing Census data, illustrates the progression of this trend over the past few years:

a graph of a number of blue bars

Why this move towards reduced square footage? It's straightforward. Builders aim to construct properties that they know will find buyers. Essentially, they prioritize areas with the highest demand. As mortgage rates began to rise and consumers grappled with affordability issues, it became evident that there was—and still is—a significant need for smaller homes. The National Association of Home Builders (NAHB) elaborates:

"After a brief surge during the post-COVID building boom, the size of homes is decreasing and is likely to continue as housing affordability remains limited."

According to a recent article in the Real Deal, this shift benefits buyers in the following way:

"Even a slightly smaller home can translate to thousands of dollars in savings—for both builders and buyers... Responding to affordability challenges, major homebuilders are redirecting their focus away from high-priced homes towards more affordable options."

What This Means for You

If you're struggling to find something within your budget, considering smaller homes might be beneficial. Moreover, when focusing on newly constructed properties, you might uncover additional advantages that aid affordability, such as price reductions or mortgage rate buy-downs. According to NAHB:

"Over one-third of builders reduced home prices in 2023. NAHB anticipates builders will persist in offering smaller homes and more cost-effective designs due to ongoing housing affordability challenges."

As Charlie Bilello, Chief Market Strategist at Creative Planning, points out:

"Homebuilders are responding to historically low affordability by constructing smaller homes and providing more incentives/price cuts. The median square footage of new single-family homes in the US has reached its lowest level since 2010."

Exploring these alternatives not only offers the allure of brand-new everything but also entails fewer maintenance demands and access to the latest features. That certainly warrants consideration, don't you think?

Bottom Line

Builders opting for smaller home construction can provide you with more affordable choices precisely when you need them most. If you're aiming to purchase a home in the near future, it's advisable to collaborate with a local real estate agent. They can help you explore what's currently on offer in your area, assisting you in finding the best fit for your needs and budget.

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