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Are New Starter Homes Becoming Smaller?

As home affordability continues to challenge buyers, builders are now testing the market for smaller, more affordable starter homes – some just 400 square feet.

NEW YORK – As home affordability becomes a concern for many, home builders are answering the call for homes that are more affordable and smaller, with some totaling just 400 square feet.

So-called "tiny houses" are popular among retirees and minimalists who are looking to simplify their lives while still owning a home. With the increase in the fixed, 30-year mortgage rate to nearly 8%, builders have reduced the size and scope of homes to meet the affordability needs of buyers.

These homes also can become "starter homes" for first-time buyers. Among new homes being built in America, fewer than 1% are homes under 500 square feet, according to Zonda, a housing data and consulting firm.

Ali Wolf, chief economist of Zonda, said, "Their existence is telling. All the uncertainty over the past few years has just reinforced the desire for homeownership, but land and material prices have gone up too much. So, something has to give, and what builders are doing now is testing the market and asking what is going to work."

In the last five decades, home buyers are increasingly couples without children, singles and empty nesters, rather than families with three children or more.

State and local governments also are jumping on the compression bandwagon, passing bills to make it easier for builders to build smaller units at greater densities. 

Source: New York Times (02/17/24) Dougherty, Conor; Montgomery, David

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