Prepare for Compact, More Economical Residences

Are you attempting to purchase a house, but finding your choices restricted due to elevated mortgage rates and soaring home prices? If that's the case, there's a silver lining: according to Ali Wolf, Chief Economist at Zonda, there's optimism about the emergence of smaller, more budget-friendly residences.

"Buyers can anticipate a significant rise in the availability of entry-level homes over the next 12 to 24 months."

In certain aspects, smaller residences have already become prevalent. When the pandemic emerged, the concept of home underwent a transformation. People began to require their residences not just as living spaces but also as workspaces, classrooms, gyms, and more. Those who possessed sufficient space were inclined to retain it, while those who didn't found themselves in a situation where they needed to sell their smaller homes in order to upgrade to larger ones. Consequently, the homes entering the market during the pandemic tended to be more compact compared to those available before the pandemic, and this pattern persists today (as depicted in the graph below):

The graph also illustrates the seasonal fluctuations in the sizes of homes available on the market. Typically, larger homes become available during the summer months, coinciding with the period when families with school-age children seek to relocate.

The seasonal patterns suggest that, considering historical data and the imminent arrival of fall, we can anticipate smaller, more cost-effective homes entering the market in the coming months.

This is excellent news because, as stated by Robert Dietz, Chief Economist at the National Association of Home Builders (NAHB), there has been a growing demand for such homes lately.

"As interest rates rose in 2022 and housing affordability deteriorated, there has been a declining trend in the demand for larger homes."

What Does This Mean for You?

The combination of the seasonal pattern of smaller homes entering the market during the latter part of the year and builders introducing smaller, more budget-friendly newly constructed homes at this moment is encouraging news, particularly if you're facing challenges in affording a home. Mikaela Arroyo, Director of the New Home Trends Institute at John Burns Real Estate Consulting, has this to say regarding the potential surge in the availability of smaller homes:

"While it may not completely resolve the affordability crisis, it is indeed opening doors for individuals to potentially afford an entry-level home within a specific location."

Bottom Line

If the prospect of owning a smaller, more budget-friendly home appeals to you, here's some positive news: they are on the horizon. To stay informed about the options in your locality, consider reaching out to a local real estate agent.