New Homes Are Shrinking — And It's Redefining Affordability in Today’s Market

The real estate market has been witnessing a notable shift in the size of new single-family homes over the past several years. Data on new home sales, which pertains exclusively to single-family homes, reveals a striking trend: the average size of these new homes has been consistently decreasing. This trend marks a significant change in the housing market, especially when considering the historical peak of home sizes. As of October 2023, a clear pattern has emerged, indicating a shift in consumer preferences or market dynamics influencing the size of newly constructed single-family homes.

The apex of this trend was observed in March 2015, when the average size of new homes reached its zenith. Since then, there has been a noticeable and almost continuous decline in the size of new single-family homes. As of October 2023, the annual average size of a new home has reduced to 2,216 square feet. This figure represents a substantial decrease of 367 square feet, which is approximately 14% smaller than the peak size. This shrinking size of new homes is a crucial factor that potential buyers and market analysts must consider, especially when evaluating the trends in the housing market.

The changing dimensions of new homes have significant implications for the real estate market, particularly concerning the median and average prices of these properties. It's important to understand that the recent reduction in the size of new homes means that, on average, newly purchased homes are significantly smaller than those bought in previous years. This size reduction could lead to misconceptions about pricing trends if not appropriately accounted for. Therefore, when analyzing the median or average price of new homes, one must consider the decreased size of these properties as a critical factor influencing their market value.

In contrast to the declining size trend observed in single-family homes, the market for new townhouses and condominiums presents a different picture. Typically averaging around 1,700 square feet, these properties have been experiencing a gentle increase in size since 2013. This contrasting trend underscores the diverse dynamics at play in different segments of the real estate market. While single-family homes are becoming smaller, townhouses and condos are gradually expanding in size, highlighting varying consumer preferences and market forces influencing these distinct housing types.

Basically what this comes down to is this, the smaller the home during this time means a more affordable price a buyer is willing to pay for. Rather than pay an extra 100-150k in the purchase price for the same house just a little bigger because their mortgage would be that much cheaper. 

“Do what you can, with what you have, where you are.”
―Theodore Roosevelt

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