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New homes are getting smaller: Here's why

The average home is smaller in 2024 for the first time in decades in response to rising costs.
A new home under construction
Posted at 4:18 AM, Jun 10, 2024

A decade ago if you wanted a new house, the question was do you want big or bigger? But the biggest trend in new homes these days is smaller homes on smaller lots.

It's in response to the housing affordability crisis and fewer large lots available in many high-demand communities.

High-end living in a smaller package

Ben Fry is a homebuilder with Fry Homes. His new community, Orchard Trail, is a prime example of building beautiful homes on much smaller lots.

"Lots are becoming harder and harder for builders and developers to find," he said.

His workers recently put the finishing touches on a new house that looks much different from typical subdivision homes

"In the bedroom," he said, "you are finding enough space for your bed and dressers. You're not seeing the sitting rooms or huge garden tubs anymore."

On the main level, the kitchen seamlessly goes into the family room, home office area and first-floor master suite. There is no longer a formal living room.

"People are getting smarter with the square footage, putting more footage in the livable space," Fry said.

Home size peaked in 2021

The National Association of Home Builders says the average home size increased in 2021 when the pandemic sparked demand for more space, with so many couples working from home. Since then, however, floor plans started to shrink. Data from the U.S. Census Bureau shows square footage of new housing units declined from about 2,500 square feet in 2021, to 2,400 in 2022 and 2023.

In the first quarter of 2024, the average new home is closer to 2,300 square feet.

Another issue is at play: soaring building and labor costs to build a new home.

Nerdwallet’s Holden Lewis says structures such as townhomes are cheaper to build and therefore more affordable to buy.

"Homebuilders are responding to affordability issues," he said.

Lewis says buyers are also giving up perks such as garage space.

"People still want bigger houses," he said. "But a lot of times when you just want to buy your first house, you want to buy your starter home, you know, you're kind of forced to start small.”

If you're in the process of building but need to trim your budget, Fry says some buyers are leaving some spaces unfinished.

"Finishing a little of the basement but not the whole thing helps somewhat," he said.

Homebuyer Carolyn Marsh, downsizing from a large family home, is sold on the idea of small.

"In the smaller house, I feel freedom," she said. "Freedom from taking care of such a large place and yard."

And that way you don’t waste your money.

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