Housing market sees shrinkflation as new homes get smaller but prices remain stable

The concept of "shrinkflation," commonly associated with consumer goods, is now influencing the housing market. This phenomenon involves reducing the size of a product while maintaining its price. In real estate, this translates to smaller homes being built at prices similar to larger ones from previous years.

Joel Berner, a senior economist at Realtor.com®, states, “Newly built homes are shrinking all over the country.” Builders are responding to rising property values and underbuilding by offering smaller homes as an affordable option.

D.R. Horton, the largest single-family homebuilder in the United States, has acknowledged this trend. Bill Wheat, Chief Finance Officer of D.R. Horton, mentioned on an earnings call that they have adjusted home sizes and prices to meet changing market conditions and enhance affordability for buyers.

Parcl Labs reports that the median square footage for new constructions decreased from 2,098 in 2022 to 2,036 in 2023—a 3% drop marking the largest annual decline in a decade.

Berner adds that builders are focusing on affordability due to significant increases in listing prices since 2019. Buyers are often willing to compromise on size to live in desirable metro areas.

Demographic changes also play a role in this shift towards smaller homes. Household sizes have been decreasing due to delayed marriages, fewer children among younger generations, and increased life spans leading to more years spent living alone or with fewer people.

These factors suggest that smaller homes will continue to be a trend as builders adapt to both economic pressures and demographic shifts.