Key Takeaways
- Home prices continue to rise, making smaller houses more popular as buyers look for affordable options.
- Builders are making more smaller homes, according to housing market data. And townhouses are making up nearly a fifth of the market.
- The housing market is still facing an inventory shortage of 4 million homes, with smaller starter homes especially needed, one economist said.
There’s big demand for smaller homes.
Home prices continue to move higher even as sales falter, making smaller houses more sought after with buyers seeking affordability.
Builders, meanwhile, are making more smaller houses—though perhaps not as many as we need, some economists say—and demand for townhouses is rising.
The typical new home size has been shrinking since 2015 as housing affordability has become stretched.
National Association of Realtor data showed that the median size of homes listed in 2024 came down to 1,791 square feet from nearly 2,000 square feet in 2019.
Similarly, Census Bureau data showed that the typical new home size was trending lower despite an uptick in the final quarter of 2024.
The median size of homes fell from a high in 2019 as builders focused on smaller floor plans.
Though smaller-sized abodes are what the market needs, it’s not clear that they’re being built quickly enough, said Robert Frick, corporate economist at Navy Federal Credit Union. Housing construction slowed after the pandemic, and the houses built were generally larger because buyers tended to have higher incomes.
“We’re still about 4 million houses below where we should be based on our population and family formation,” said Frick. “So it’s a long-term problem.”
Buyers Turn to Townhomes as Inventory Woes Persist
Limited inventory, especially for smaller starter homes, is plaguing the housing market, Frick said, especially as high mortgage rates drive up borrowing costs.
The demand for smaller homes can be seen in the increasing popularity of townhomes, which now make up 17% of the single-family market, compared to 10% in 2009, said Rose Quint, assistant vice president of survey research at the National Association of Home Builders.
“There’s a simple reason this is happening: Townhomes are more affordable as material, lot, and labor prices continue to increase,” said Quint.