Shrinkflation Has Hit the Housing Market
Housing affordability has entered the shrinkflation era.
Smaller houses. Smaller lots. Smaller yards. Same big price tag.
Look at what has happened to the size of the typical new single-family home.
The median new build peaked around 2,488 SF.
Today? About 2,145 SF.
In many markets, we’re seeing $500,000+ new homes being built on the outskirts of town with:
2,100 SF
Zero-lot-line lots
Tiny backyards
Minimal separation from the neighbors
And first-time buyers are buying them. Why?
Because the builders make the monthly payment look attractive.
Buy down the mortgage rate to 3.99%.
Throw in a golf cart, (really!)
And suddenly a $500,000 house feels more affordable.
But the house didn't become cheaper.
The financing did, and that's an important distinction.
We may be creating a generation of homeowners who can afford the payment but are stretching themselves to afford the house.
Meanwhile, the existing-home market has to compete against subsidized builder financing, incentives and shiny new construction. But they can't, as evidenced by the monthly housing sales numbers.
This doesn't strike me as a sustainable solution to the affordability problem.
Instead, it's financial engineering wrapped in a housing package.
Are we actually making housing more affordable? Or simply making expensive housing easier to finance, and sustaining the debt trap that Americans seem to accept as part of "The American Dream"?
Most Popular Reply
#3 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
In 1980 the average home was 1600sf and a household had an average of 3.3 people. Now it’s 2.5 people. So houses should be smaller than 1600sf. The “problem” is every young person wants to live in a house at least as nice as the one their parents owned when they were 40+ years old. (They also never seem to notice the house was “out in the sticks” when their parents bought it, not downtown expensive place to live. But they want to live in downtown expensive place, that’s their right. Even if they’e still single. AND. The government (Mostly state and especially local ones) Have tacked on so many costs and restrictions that are never per sf. So a smaller home doesn’t lower the cost very much.
Lastly. Lowering the financing cost of housing, lowers “the cost of housing”. Every single time someone says housing is unaffordable, they mean the payment. It wouldn’t help “first time home buyers”. If houses dropped 20% but interest rates went back to 12%. (Their payment would go up more than 20% and housing would be deemed “unaffordable”. OTH. If housing went up 10% but they could pay 3% interest instead of 6.5%, their payment would go down 27% and they’d be ecstatic.