A Wave of Smaller, Affordable Homes on the Horizon

Are you in the market for a new home but finding yourself thwarted by the seemingly relentless surge in mortgage rates and home prices? Well, there's a silver lining on the horizon. According to Ali Wolf, the Chief Economist at Zonda, smaller, more affordable homes are poised to make a comeback:

“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.”

In fact, smaller homes are already making their presence felt. When the pandemic struck, the very concept of 'home' underwent a profound transformation. Homes weren't just places to live; they became offices, schools, gyms, and more. Those who had room to adapt to these new demands tended to hold onto their homes. Meanwhile, those with limited space found themselves looking to upgrade to larger residences. Consequently, during the pandemic, smaller homes became the norm in the housing market, and this trend continues to shape the market today (as illustrated in the graph below):

This graph also underscores the seasonality of the housing market, with larger homes often appearing during the summer months when families with school-age children are more likely to move.

With fall approaching and historical patterns in mind, we can anticipate an influx of smaller, more affordable homes hitting the market for the remainder of the year.

This is excellent news, particularly for those struggling to afford a home. Robert Dietz, the Chief Economist at the National Association of Home Builders (NAHB), notes the recent shift in demand for smaller homes:

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

What Does This Mean for You?

The seasonal trend of smaller homes appearing in the market later in the year, combined with builders currently introducing smaller, budget-friendly newly constructed homes, bodes well for prospective homebuyers. Mikaela Arroyo, the Director of the New Home Trends Institute at John Burns Real Estate Consulting, offers her insight on this potential increase in smaller homes:

“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.”

If the idea of a smaller, more affordable home appeals to you, you're in luck – they're on their way. To stay updated on what's available in your locality, reach out to a local real estate agent. The path to your dream home may be shorter than you think.