It’s no secret that home affordability across the country has been an ongoing issue for years. Many are left wondering how long it will take them to save up to buy their first single-family home, and what life will be like with high mortgage payments and other monthly expenses.
According to the latest data from the U.S. Census, new home prices have steadily increased over the last decade.
But when you finally do manage to get the keys to your new home, you may find you have less room than you might have expected. The sizes of newly built homes have dropped over the past decade, with homes now over 200 square feet smaller than before, resulting in housing shrinkflation.
The cost to buy a new home is increasing and the size of a new home decreasing over the last 10 years. Homeowners are paying more and getting less than those who bought a new home a decade ago; in terms of interior space at least.
In 2023, the median-sized home was 2,233 square feet (sq ft). Compare this to 2014 where the size was 2,453 sq ft, we see a decrease of 220 sq ft. That equates to a 9% drop in size. This could now mean one less bedroom, one less carport space, or a reduction in general house dimensions overall.
Coupled with the fact that the median average new home sales price has risen by over $140,000, a 49% increase in 10 years, new homes have become more expensive while also becoming smaller. However, it’s also worth noting that 2023 saw a drop in home prices compared to 2022, becoming $5.9K more affordable. While slight, it’s the biggest year-on-year drop in the last decade.
Logically you may assume that if you’re purchasing a smaller home, you would expect to pay less. However, we’ve seen that in recent years that isn’t the case. According to the NAHB, home-building materials remain above pre-pandemic levels. But the reality of home affordability is not so straightforward with various other factors at play.
Dennis Shirshikov, Head of Growth at Gosummer.com and adjunct professor of economics at City University of New York, explains that the reason behind this is threefold, saying, “First, the cost of land has continued to rise, especially in desirable locations. Second, building regulations and zoning laws often add significant costs to development projects. Third, the quality and features of new homes have improved, with buyers expecting high-end finishes, energy-efficient systems, and smart home technologies, which increase the overall cost.”
Ryan Zomorodi, co-founder of Real Estate Skills, also believes the issue is due to an array of factors, saying, “New home prices aren’t reducing at the same rate as sizes due to persistent high land, materials, and labor costs. The strong demand for new homes and limited supply also allows builders to maintain higher prices.”
Ryan Fitzgerald, real estate entrepreneur at Raleigh Realty Homes, offers an example that backs up the data. “Just last month, one client wanted a 4-bed, 3-bath place under $400k. After months of searching, we realized the only options were cutting size by 10-15% or building an hour away.”
So while there may be reasons as to why the increase in costs, what do experts believe are the reasons for the decline in the square footage of homes?
Dimitri Zubrich, a REALTORⓡ at RE/MAX, says, “New homes are shrinking due to rising construction costs and the push for more efficient land use. Builders are reducing square footage by about 10% to keep homes affordable and sustainable.”
Pete Evering, business development manager at Utopia Management, points to younger homeowners’ lifestyle as one of the main reasons, saying, “Affordability certainly plays a huge factor here, as smaller homes tend to be cheaper to construct and maintain. However, I don’t think it’s the whole story. We can also credit the increasing popularity of smaller, more sustainable living spaces that are especially popular among younger homebuyers.”
A recent survey also shows more homeowners prefer open-plan living concepts, taking away the need for separation with hallways.
Bob McCranie, owner of Texas Pride Realty Group, points to affordability first and foremost, commenting that, “The average wages for Americans have not grown at the same pace as inflation. Home prices are way up, especially for new construction. Builder markups are often highly inflated and difficult to fight.”
In 2024, Hawaii tops the list of most expensive new homes at a median price of $1,082,897, closely followed by Massachusetts ($1,033,271) and Connecticut ($941,884). At the other end of the scale, the most affordable new homes can be found in Mississippi with a median cost of $295,835.
There are only six states that have seen a decrease in the median average new home price from 2023 to 2024. While this NAHB data is fact, it should be noted that inventory can have a great impact on these figures. A greater demand for higher or lower-end properties can sway this data one way or another. It does, however, paint an overall picture of the current fluctuation of new home prices in each state over the past year. McCranie says, “Nearly all builders I deal with are going high-end, which is where the profit is.”
Is there a brighter outlook on the horizon for home affordability? Zomorodi predicts an ongoing challenge while remaining optimistic saying, “there could be some relief if there are significant shifts in supply and demand dynamics or policy changes to increase housing availability. The Federal Reserve is expected to lower interest rates, which should theoretically reduce the cost of buying a home.
“However, years of pent-up demand means lower interest rates could attract more buyers, increasing competition for the existing inventory. If this happens, home prices could rise even higher than they already have.”
Evering believes we can expect a similar picture for years to come. “There are no signs that home affordability will improve in the next couple of years, so these smaller and somewhat cheaper homes will be the only ones accessible to many homebuyers,” he says. “I think there will also be greater emphasis on alternative housing solutions, like multifamily rentals, or even the so-called “third places” in urban areas.”
Finally, McCranie believes in a solution. “Smaller, more affordable homes are needed now,” he says. “We have to have alternatives that people can afford without injuring themselves financially.”
