Have you been trying to buy a home but have faced challenges due to the rising mortgage rates and soaring home prices, which have limited your choices? If this situation sounds familiar, there's some encouraging news on the horizon. Ali Wolf, the Chief Economist at Zonda, has some promising insights – there's a notable increase in the availability of smaller, more affordable homes on the horizon:
"Buyers can look forward to a significant uptick in the number of entry-level homes hitting the market in the next 12 to 24 months."
In some ways, smaller homes have already started to emerge. The concept of home has evolved with the onset of the pandemic. Homes are now not just places to live but also spaces for work, education, exercise, and more. Those fortunate enough to have spacious homes tended to hold onto them, while those without that luxury sought to sell their smaller homes in pursuit of larger ones. Consequently, homes entering the market during the pandemic tended to be smaller than those available before the pandemic – a trend that continues today (as shown in the graph below):
This graph also illustrates how home sizes on the market change with the seasons. Larger homes tend to be listed during the summer months when families with school-going children are more likely to move.
Taking into account this seasonality and historical patterns, and with autumn approaching, we can anticipate the continued emergence of smaller, more affordable homes in the market throughout the rest of the year.
This is undoubtedly positive news because, as Robert Dietz, the Chief Economist at the National Association of Home Builders (NAHB), highlights, the demand for smaller homes has surged recently:
"...as interest rates increased in 2022 and housing affordability declined, the trend has leaned toward smaller homes."
What Does This Mean for You? The seasonal trend of smaller homes entering the market later in the year, coupled with builders introducing smaller, more affordable newly constructed homes right now, provides a glimmer of hope – especially for those grappling with home affordability. Mikaela Arroyo, Director of the New Home Trends Institute at John Burns Real Estate Consulting, offers her perspective on the potential increase in the availability of smaller homes:
"While it may not entirely solve the affordability crisis, it does create opportunities for individuals to acquire an entry-level home in their desired area."
Bottom Line If the idea of owning a smaller, more affordable home appeals to you, the good news is that such options are on the horizon. To stay informed about what's available in your local area, consider reaching out to a local real estate agent