One of the most significant barriers to homeownership is affordability. Rising home prices, down payment expectations, elevated mortgage rates, and closing costs have made it challenging for first-time homeowners to enter the housing market.
As the size of the average U.S. household shrinks, the need for large and expensive homes is subsiding.
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To address the dwindling housing supply and waning demand, housing experts suggest ramping up the construction of smaller, more affordable homes to meet buyer needs and price ranges.
Smaller homes are less expensive and more appealing to first-time homebuyers hoping to enter the housing market with a lower price range.
Berkshire Hathaway Home Services shares why buyers on a budget should set their sights on smaller homes and the long-term payoff of lower square footage.
First-time homebuyers often have a lower budget than the average buyer, making compact houses a great fit. Berkshire Hathaway Home Services notes that small houses may have greater resale value.
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Berkshire Hathaway Home Services says smaller homes are more practical ā and affordable ā for first-time homebuyers
The average U.S. household size is shrinking, and buyers are downsizing their homes to match. The U.S. Census Bureau found that theĀ average household size shrank from over three people in 1975 to 2.5 people in 2024.Ā
The number of households without children is also rising, lowering demand for larger homes. During the challenging 1980s housing market, plagued by double-digit mortgage rates,Ā construction projects pivoted toward smaller homes to meet buyers’ needs.
Smaller homes may be making a resurgence, as the averageĀ size of newly built homes dropped to 2,150 square feet in 2024, the lowest level in 15 years.
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Berkshire Hathaway Home Services highlights why the housing market is pivoting and explains the appeal of smaller homes to budget-conscious buyers.
The blog stated, “The trend of smaller households is yet another factor influencing the appetite and need for smaller homes. Bigger homes used to be more desirable to homebuyers, but between lack of affordability and rising eco-awareness, smaller homes are becoming the new standard.”
Berkshire Hathaway Home Services explains that smaller homes yield better ROI on property value
In addition to being more affordable and having less space to manage, smaller houses appreciate faster than larger ones. The Federal Housing Agency (FHA) found that the averageĀ annual home appreciation rate was 4.5% in October 2024.
Though several factors impact property value growth, smaller homes actually appreciate at a faster rate, despite lower home prices.
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“The icing on the cake? Small homes appreciate faster than larger homes.” The Berkshire Hathaway Home Service blog elaborated.Ā
Realtor.com research found that homes with 1,200 square feet or less appreciated at 7.5% per year pre-Covid, while homes with at least 2,400 square feet saw an appreciation rate of 3.8%.
While each home’s appreciation rate varies, smaller homes can generate high returns at a more realistic price point for first-time buyers.
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