Downsizing Dream Homes: High Mortgages Squeeze Homebuyers

By: James Flippin · August 23, 2023 · Reading Time: 2 minutes

Mortgage Costs

During 2020 and 2021, prospective homebuyers were looking at interest rates close to 3%. Today, the average 30-year fixed-rate mortgage sits above 7%. With many buyers now priced out of the housing market, homebuilders seek creative ways to make new homes more affordable, including shrinking home sizes. Architects and builders are increasingly designing smaller homes, removing dining areas, bathtubs, and living rooms.

Shrinking Homes

Since 2018, the average size of a new home has decreased by 10% nationally. Homebuilders have capitalized on this trend by getting creative with the limited space available.

Some increase the size of multi-use rooms like kitchens and living rooms, while removing extra bedrooms or connected bathrooms, to create more versatile and affordable homes. Others remove dining rooms completely, with kitchen islands doubling as prep stations and tables.

The trend could offer some much-needed relief to entry-level buyers, who saw a 72% rise in home ownership costs between February 2020 and May 2023. But the appeal isn’t limited to new homeowners — empty nesters have shown strong demand for smaller homes as well.

House Hunting on a Budget

In certain markets, homes that are 300 to 500 square feet smaller have been listed for $50,000 to $75,000 less than full-size homes.

On the flip side, buying a smaller home often means you will end up paying more money per square foot. It’s the dollar store effect: smaller quantities and lower price tags, in exchange for a higher price per serving.

It can be easy to get wrapped up in trying to find the best deal possible. Buying a home may still be a good financial decision, as long as the house and monthly costs are within budget and a good lifestyle-fit.

Looking for more stories like this? Check out On the Money — SoFi’s one-stop-shop for news, trends, and tips!

Check it out

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Advisor
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

TLS 1.2 Encrypted
Equal Housing Lender