Housing Market ‘Shrinkflation’: Smaller Homes, Same Price—What’s Going On?

We’ve all seen shrinkflation in everyday items—from fewer chips in the bag to fewer sheets on a toilet paper roll. Now, this phenomenon is affecting the housing market, where newly built homes are shrinking in size, yet their prices remain largely unchanged.

The Shrinking Trend Explained

Housing affordability has stretched thin, pricing out many potential buyers. To help with affordability, builders have turned to tactics like mortgage rate buy-downs and assistance with closing costs. But there’s a new tool in their arsenal: smaller homes.

As Joel Berner, senior economist at Realtor.com®, puts it, "Builders are attempting to fill the void of affordable housing that has been created due to property appreciation and decades of underbuilding.” It’s not just about affordability; it’s also about catering to the needs of smaller households and adapting to the demographic shift towards one- and two-person households.

How Much Smaller Are Homes Getting?

D.R. Horton, a major player in home construction, recently reported a 3% decline in the median size of their new homes—from 2,098 square feet in 2022 to 2,036 square feet in 2023. This marks the largest single-year decline in home size in a decade, according to Parcl Labs.

As Bill Wheat, D.R. Horton’s CFO, noted, "To adjust to changing market conditions during fiscal 2023 and into fiscal 2024, we have increased our use of incentives and reduced home prices and sizes of our home offerings, where necessary, to provide better [housing] affordability to homebuyers.”

Why Homebuyers Are Embracing Smaller Homes

Smaller homes come with a price tag that, while not significantly lower, remains within reach for more buyers. This shift caters not just to affordability concerns but also to a new wave of homebuyers—often younger, child-free, and valuing location over space.

"Given the steep increase in listing prices since 2019, many buyers feel like they can't find a home that fits their budget," Berner explains, "and builders are betting that they're willing to sacrifice a bit of size to live in the metro areas they're targeting."

Bottomline

The trend towards smaller homes reflects a balancing act between housing affordability and changing lifestyles. If you’re eyeing a move in the Orange County area and need a home that fits your needs, let’s connect! Whether you’re scaling down or looking for that perfect first home, I’m here to help you navigate the market.

Reference: Lambert, L. (2024, October 4). Housing Market ‘Shrinkflation’: Why Homes Are Getting Smaller—but You’ll Pay About the Same Price. Realtor.com.