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September 7, 2023

Smaller, More Affordable Homes are Coming to Market

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A Bright Spot for First-Time Buyers

Have you been trying to buy a home, but mortgage rates and home prices are limiting your options? You’re definitely not alone. First-time homebuyers especially should take note of the good news: Smaller, more affordable homes are on the way.


Ali Wolf, Chief Economist at Zonda said,


“Buyers should expect that over the next 12 to 24 months there will be a notable increase in the number of entry-level homes available.”[1]

Residual Effect of the Pandemic

In some ways, smaller homes are already here. During the pandemic, the meaning of home changed. People needed the space their home provided not only as a place to live, but as a place to work, learn, exercise, and more. Those who had that space were more likely to keep it and those who didn’t were in a position where they were trying to sell a smaller house to move into a larger one. This means that the homes coming to market during the pandemic were smaller than those on the market before the pandemic and the trend continues today. (See graph below.[2])

Seasonality Affecting Inventory Too

The graph also shows how the size of homes on the market changes seasonally. Larger homes tend to come on the market during the summer months when households with children who are out of school are looking to move.


Seasonality means that, based on historical trends and the fact that fall is approaching, we can expect smaller, more affordable homes to come to the market throughout the rest of the year.


That’s great news, because as Robert Dietz, Chief Economist at the National Association of Home Builders (NAHB) states, the need for these types of homes has gone up recently,


”… as interest rates increased in 2022, and housing affordability worsened, the demand for home size has trended lower.”[3]


New Construction on the Rise

As we wrote about last month, new construction is on the rise. The number of New Residential Home Completions, as in newly built homes that are move-in ready, is now matching the long-term average, after a decade of falling consistently below average year after year.[4] Read more about the Momentum in New Construction. The pool of options is growing despite low levels of inventory.

What does this mean for you?

The seasonal trend of smaller homes coming to the market in the later months of the year, coupled with builders bringing smaller, more affordable, newly built homes to the market now, is good news, especially if you’re finding it difficult to afford a home. Mikaela Arroyo, Director of the New Homes Trends Institude at John Burns Real Estate Consulting was quoted saying about a potential increase in the availability of smaller homes throughout the country,


“It’s not solving the affordability crisis but it is creating opportunities for people to be able to afford an entry-level home in an area.”[5]


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