New construction smaller homes

New homes shrink as costs of buying grow 

The median square footage for a home under construction — now 2,191 — has hit its lowest point since 2010.

August 21, 2023
3 minutes

Key points:

  • The latest home-size numbers from the Census Bureau are down more than 6% since the end of 2021.
  • Low mortgage rates and higher interest in working remotely drove up home size at the beginning of the pandemic.
  • Despite challenges, homebuying activity has “returned to more healthy levels” for builders.

Builders are responding to housing affordability challenges the best way they can: By constructing smaller homes.

The median square footage of a home under construction was 2,191 in the second quarter, the lowest since 2010, according to the latest data from the U.S. Census Bureau. That's down nearly 3% compared to the first quarter and down over 6% compared to the end of 2021, which was the peak in the last five years.

The size of homes being built rose at the beginning of the pandemic because really low mortgage rates were in place as people began using homes more for work, said Robert Dietz, chief economist at the National Association of Home Builders. 

If mortgage rates continue to rise, Dietz expects the median and average square footage to continue to fall. As of Aug. 21, the survey for 30-year fixed-rates from Mortgage News Daily was at 7.48%, the highest level in more than 20 years.

Combined with home prices that haven't been dropping in most markets, affordability is near all-time lows. The Wells Fargo/NAHB Housing Opportunity Index was at 40.5% at the end of June, slightly higher than the all-time low of 38.1% at the end of 2022. The index has been in place since 2012.

Even with those daunting numbers, there is demand for new homes, possibly because they are smaller and more affordable. Ali Wolf of Zonda noted in a recent blog post that new homes are becoming a bigger part of the overall housing market share.

"What a difference a year makes." Wolf said. "This time last year, quick move-ins were starting to pile up, the majority of buyers moved to the sidelines, and builders were scrambling to figure out the best way to stimulate demand. Today, homebuying activity has returned to more healthy levels. While the market isn't 'easy,' builders are capturing more than their historical share of buyers." 

Affordability appears to play a role in home size. Prior to the past year, the trend over the past 25 years has been to build larger single-family homes. 

Dietz noted that home size rose from 2009 to 2015 as entry-level new construction lost market share during the Great Recession. Home size declined between 2016 and 2020 as more starter homes were developed.

The size of a home being built varied by region. The median square footage of a home under construction in the Northeast was 2,410 in the second quarter, while the Midwest was only at 1,979 square feet. The South region homes under construction had a median size of 2,248 square feet, while the West came in at 2,135.

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