Newly built homes in the U.S. have shrunk to their smallest average size in two decades as buyers pay more for less space, pinched by higher mortgage rates and fading affordability, new analyses show.

Average Home Size Falls As Prices, Rates Bite

The average new single-family home sold in 2024 measured 2,404 square feet, down roughly 11% from a decade ago, according to an analysis of Census Bureau data on new-home sizes by LendingTree.

The squeeze isn't just in square footage. The median sales price of a new home stood at $403,800 in July, according to federal data, while 30-year mortgage rates, which were near 2.65% in early 2021, hover around the mid-6% range, eroding what households can afford.

Affordability is set to get tighter. Realtor.com says only 28% of homes on the market in August were affordable to a household earning the U.S. median income, down from 30% earlier this year.

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"Even as incomes grow, higher interest rates have eroded the real-world purchasing power of the typical American household," said Danielle Hale, chief economist at Realtor.com. "This dynamic is forcing many buyers to adjust their expectations, whether that means looking for smaller homes, moving farther out, or delaying the dream of homeownership altogether."

Builders Pivot To Smaller Footprints Amid Squeeze

Builders are responding by delivering smaller, more budget-minded homes, a shift Realtor.com has tracked across the country. That trend, together with elevated borrowing costs, helps explain why buyers today frequently settle for less space, if they can buy at all.

Homebuying activity has slumped. Total home sales last year fell to their lowest level since 1995, according to Harvard's Joint Center for Housing Studies and researchers warn the market remains under strain from high prices, rates and insurance costs.

Outlook Hinges On Rates, Say Economists

Some relief could come if mortgage rates ease, but economists note any improvement may be gradual. In the meantime, housing-linked investors are watching builders and suppliers for signals on demand and margins.

Photo Courtesy: Jon Bilous on Shutterstock.com

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