First-Time Home Buyers Downsizing
Faced with high prices and rates, first-time buyers are choosing smaller homes, prompting builders to scale down size and features to keep sales moving.
NEW YORK — First-time homebuyers, hobbled by higher home prices and mortgage rates, are taking tentative steps off the sidelines by buying homes smaller than they anticipated.
Many have opted to curb their expectations for a dream home and accept what they can afford. They realize smaller homes can reduce the expenses associated with new homes. In turn, builders are hoping that smaller, newer homes will entice new buyers and reduce their own expenses.
In the first quarter of 2025, the average size of single-family homes has declined. It had declined year-over-year in each quarter since 2022. Mortgage interest rates have increased to 6.86%, and some homeowners are willing to sacrifice size to purchase a home.
Others are opting to forgo features they want to save money.
Carl Reichardt, managing director of homebuilding equity research at BTIG, said, "One way to offset these higher input costs is to just use less of the input, and that means a smaller, simpler house."
According to a John Burns Research and Consulting survey in December, about 25% of nearly 1,200 homeowners and renters said they would purchase a home between 1,251-square-feet and 1,750-square-feet.
Realtor.com found in March the median square footage for newly constructed homes on the market nationally was 2,034-square-feet, down 4.75 from 2,135 in March 2020.
To maintain sales, builders are adjusting to buyer's needs. A growing number of builder D.R. Horton's listings having smaller floor plans. In some instances, home buyers also are choosing finished like built-in cabinetry over upgrades like granite countertops due to the cost.
Source Wall Street Journal (05/23/25) Jacob, Denny
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