According to Ralph McLaughlin, Senior Economist at Realtor.com®, the median price of homes for sale in June 2023 remained at $445,000, unchanged from the same period last year. However, the median price per square foot increased by 3.4%, indicating a rise in the number of smaller and more affordable homes on the market. McLaughlin points out that this trend reflects the current economic environment, with a strong demand for smaller homes among homebuyers.

A recent report from Realtor.com shows that the shrinking of homes is not an ideal choice for all buyers, especially as the standard feature of hallways gradually disappears. A new survey reveals that building designers believe new homes will continue to shrink, and hallways will become a thing of the past. The benefits and drawbacks of this trend are worth exploring.

In the past five months, sales of affordable homes priced between $200,000 and $350,000 have increased more than homes in all other price ranges. Compared to the same period last year, the number of homes for sale in this price range increased by 50% in June 2023. This means that buyers have more options at more reasonable prices, even as mortgage rates remain high.

Buyers looking for smaller and more affordable housing should focus on the southern United States, which has driven the growth of the small housing inventory. According to the U.S. Census Bureau, the median square footage of newly built single-family homes in the first quarter of 2024 was 2,140 square feet, a decrease of 116 square feet from the median size in 2023.

"In the new home market, builders are working hard to meet the demand for smaller homes," says Jason Gelios, a real estate agent at Community Choice Realty in Southeast Michigan. He notes that there is a shortage of existing smaller homes due to the pre-COVID-19 popularity of McMansions. Gelios adds, "Now that the trend is toward smaller, more economical housing, it makes sense for builders to follow suit."

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For homebuyers looking for lower price tags and lower home maintenance costs, smaller houses are very appealing. Cindy Allen, a real estate agent at DFW Moves, states, "I've worked with many buyers who choose smaller homes to avoid the maintenance and upkeep costs associated with larger houses. Lower heating and cooling costs are also an advantage."

Another notable reality is that most modern homebuyers no longer need as much storage space. Bruce Ailion, a real estate agent and attorney at Re/Max Town and Country, says, "Years ago, our televisions were as big as large moving boxes, and stereo systems had turntables, tape players, and large speakers. Nowadays, TVs are flat against the wall, and all the music is stored on a smartphone in your pocket."

Recent surveys on U.S. residential building and design indicate that new homes will continue to get smaller. Jenni Nichols, Vice President of Design at John Burns Research and Consulting, conducted a survey showing that 43% of residential designers worked on smaller projects last year compared to the previous year. She explains, "27% of residential designers reduced the size of their projects last year to save costs. Builders are working hard to construct homes that people can afford because people’s purchasing power isn't what it used to be."

In this survey, residential designers indicated that they are four times more likely to plan small homes this year compared to large homes. Nichols explains, "As home sizes shrink, the homes themselves also get smaller. You can only fit an appropriately sized home on a smaller lot."

Due to this trend toward smaller homes, building designers are starting to design homes differently. Nichols notes, "Circulation spaces like hallways take up square footage but usually don’t provide any practical function, making them easy targets for elimination." She also observes that designers are incorporating other space-saving elements, such as eat-in kitchens, pocket offices, and unisex bathrooms.

"As homes get smaller, people prefer to use limited space for practical purposes rather than waste it on inefficient areas," Nichols concludes.