Today’s homebuyers face a shocking reality: houses are getting smaller, while price per square foot is getting higher.
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A new LendingTree study highlights this “housing shrinkflation.”
It shows the average size of new single-family homes sold in the U.S. fell 11.2% over the past decade, from 2,707 square feet to 2,404 square feet. At the same time, the average price per square foot jumped 74%, from $97.25 to $168.86.
This means that for many Americans, they’re paying more money and getting less house.
Why are new builds shrinking?
"Home sizes peaked in 2015 at 2,724 square feet. While there was a brief uptick in 2022, they declined in 2023 and 2024," says LendingTree. It said in 2024, the South experienced the steepest decline (13.2%), followed by the West (10.4%) and Midwest (10.0%), and the Northeast actually saw a modest increase (2.1%).
Cost may be the biggest driver of “housing shrinkflation.”
The Wall Street Journal says, “Builders have been focusing more on the starter-home market, particularly over the past few years as high prices and mortgage rates made bigger homes prohibitive for first-time buyers.”
Miles Alexander III, principal at real-estate development and investment firm Alexander Goshen, calls it a “perfect storm” of rising land, labor, and material costs: “To keep projects viable, builders are trimming square footage but maintaining price points,” he told Fortune. “It’s not that we want to deliver less space, it’s that the economics demand it.”
There is a shortage of skilled construction labor, which adds onto the overall expense of homes. Tariffs have also added pressure, driving the costs up for materials like lumber, steel, drywall, and copper.
So, does downsizing make homes more affordable? The math doesn’t always work out that way. Even though square footage is down, overall affordability is still a struggle for many Americans.
According to Cotality data cited by The Wall Street Journal, the median price for a starter home rose to $287,000 in 2024, up by about 44% from 2020. "Many of the costs don’t necessarily adjust downward just because the home is smaller, such as the price of the lot or the expenses of getting permits," says the report, which added that the income needed to qualify for a mortgage nearly doubled to over $101,000.
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What should new buyers expect?
Last year, John Burns Research & Consulting mentioned the “death of the hallway,” noting that instead of shrinking rooms, designers are getting rid of circulation space to cut square footage. “Essentially, we’re Tetris-ing the functional rooms together,” they said. Developers are also using space-saving ideas like pocket offices and multifunctional spaces.
Elyse Sarnecky, marketing director with Marketplace Homes, told Fortune that first-time buyers are prioritizing budget and having a functional floor plan over sheer size. “The actual floor plan of the home is really important as well when considering this. It has to work for their family,” Sarnecky said. “As long as it does, size is less of a factor.”
The National Association of Home Builders echoes this, stating in a press release that over half of millennials (52%) say they’d trade square footage for style, choosing a smaller home with higher-quality products and amenities over a bigger one with bare-bones amenities.
While some buyers may choose smaller homes, others can look to lower-cost areas to suit their budget.
Here’s some tips for homebuyers:
- Expect smaller floor plans: The average size of new single-family homes sold is at the lowest since 2004, and it’s not a trend that may change anytime soon.
- Watch for new build incentives: Builders often offer mortgage rate “buydowns” to entice buyers. In 2023 and 2024, new-home buyers paid about half of a percent lower mortgage rates than existing-home buyers, according to Realtor.com.
- Widen your search: Some areas offer new builds that are cheaper than resale homes, but the gap varies widely by location.
- Check price per square foot: A smaller home might look cheaper at first glance, but the per-square-foot cost may still be steep, so be sure to make sure the finances make sense for your budget.
- Look at alternatives: Townhomes, modular builds, or manufactured housing could deliver more value for your money versus a traditional single-family home.
“Housing shrinkflation” is happening whether we like it or not. The key for buyers is to weigh the trade-offs carefully to make the decision that is right for them.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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