“Fundamentally, every major housing market in the country is overpriced right now,” Matt Saunders, senior vice president of building products research at John Burns Research and Consulting, told Fortune, adding that this is generally true if you’re looking at it from a housing-cost-to-income ratio.
In order to address the affordability crunch, many builders are reducing home size.
“There’s really this active response by the builders to address these affordability concerns head-on, and one of the main kind of levers that they’re pulling is reducing home square footage,” Saunders said.
In several markets across the nation, housing just doesn’t feel attainable. Look no further than a couple earning around $225,000 annually but feel as though owning a home in Los Angeles is “hilarious,” and a business owner renting in New York City despite earning over $200,000 annually. According to Bank of America’s annual millennial housing survey, the lack of affordability is why “attaining the American dream is becoming more challenging than ever.” And not only are builders addressing affordability for buyers, but they’re also doing so for themselves. Relative to 2019 levels, costs for builders are still up around 35%, Saunders said. By reducing the size of the homes they build, they’re also reducing their material costs.
Interestingly enough, it’s not a “uniform reduction in square footage,” Saunders said. Instead, it’s sort of a tradeoff within the home, and that can be seen in John Burns Research and Consulting’s annual survey of architects for homes built last year, shared withFortune. Kitchens and ground-floor outdoor space, for instance, were considered a top priority leveling up in allocated share within homes. Meanwhile, upper-level outdoor space, secondary bedrooms, and shared family areas were considered low priorities, declining in physical home share. That all means that buyers would rather have a larger kitchen space and larger backyards or front yards, than extra bedrooms and additional living spaces. In order to do that, builders and architects are choosing to reduce the size of the latter options to give way to the former.
“What we’re seeing in the data is that, for example, kitchens are growing by cannibalizing formal dining spaces,” Saunders said. “And so there’s this trade between larger kitchen sizes, cannibalizing the formal dining spaces of the home.”
The same can be said for ground-floor outdoor living spaces, amid a growing appetite for outdoor living, as Saunders put it—a trend that predated the pandemic but accelerated with the pandemic. This survey, he said, is a leading indicator of what we can expect this year and over the next few years.
“It’s all to address these affordability constraints,” Saunders told Fortune.
In particular, builders are shrinking secondary bedrooms and shared family areas. The pandemic changed a lot of things, but mostly how people work and live at home—and that’s reflected in what buyers are prioritizing in their homes.
Close to half of the survey’s respondents anticipate that projects will be even smaller in square footage this year compared to last year. With that, Saunders said, there’s an increase in production of entry-level homes. As Fortune previously reported, the share of projects under $300,000 is declining all across the country, according to Zonda, a housing data and consulting firm. Zonda’s chief economist, Ali Wolf, explained that the decline of the $300,000 starter home has a lot to do with the Pandemic Housing Boom, which sent home prices up 41% on a national level. Therefore it’s possible that builders reducing home sizes to increase affordability could essentially bring back starter homes, or homes under $300,000 that should be considered “attainable housing,” according to Wolf.
“Affordability is a broader issue that needs to be reset, and the builders are right now solving for affordability,” Saunders said.
Reducing home size is a way for builders to make housing more affordable. Builders want to address affordability constraints so they can sell homes, it’s as simple as that. And it’s the same reason builders are offering rate buydowns, temporarily bringing a buyer’s rate from, say, 6.5% to 4.5%.
As of right now, incentives like rate buydowns are making the difference. However, Saunders said, there are early signs that builders reducing home sizes is working too.
“Our forecast right now, in terms of average square footage, is for single-family starts to decline by around negative 3% this year, and then around negative 2% next year,” Saunders said. “So I think this is a multiyear trend we’re seeing right now and confirmed by this architectural survey…a crystal ball of what’s coming in the pipeline.”
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FAQs
The Federal Reserve's monthslong battle with soaring inflation has helped push mortgage rates skyward, thus increasing borrowing costs for buyers. Also, demand for homes soared in 2022 and builders couldn't keep up with the pace, driving prices for existing homes even higher.
What are 5 reasons the housing market is not about to crash? ›
When will the housing market crash? Actually, economists do not think it will. Housing economists point to five main reasons that the market will not crash anytime soon: low inventory, lack of new-construction housing, large amounts of new buyers, strict lending standards and a drop in foreclosures.
Is housing now unaffordable? ›
Plenty of statistics confirm that housing has become less affordable. Rental costs in the inflation index have risen more than 7% this year, nearly double the prepandemic trend. Home prices jumped 20% year-over-year on an annualized basis during the pandemic buying surge.
Why are investors buying up all the houses? ›
Investors piled into the housing market in 2021 due to rock-bottom mortgage rates and surging housing demand, and are now retreating amid projections that home prices have room to fall.
Why do housing prices never go down? ›
The simplest reason is the rapid rise in mortgage rates has slowed housing activity to a crawl.
Why has housing become so expensive in the US? ›
Increase In Local Zoning Regulations
A few examples of zoning regulations are permit requirements, neighborhood restrictions, and population density laws. Together, these have pushed home prices to become more expensive — as they often decrease the potential supply of housing.
What triggered the housing crisis? ›
In 2008, the housing market bubble burst when subprime mortgages, a huge consumer debt load, and crashing home values converged. Homeowners began defaulting on the home loans.
What happens if the housing market collapses? ›
As prices become unsustainable and interest rates rise, purchasers withdraw. Borrowers are discouraged from taking out loans when interest rates rise. On the other side, house construction will be affected as well; costs will rise, and the market supply of housing will shrink as a result.
What could crash the housing market? ›
Home prices rise faster than income or inflation. Low availability of affordable housing. High rates of subprime mortgages and predatory lending. High mortgage rates.
What are the negative effects of unaffordable housing? ›
What problems arise when households struggle to afford housing? Unaffordable housing costs can force families to spend less on other basic necessities like health care or food, to cut costs by seeking lower-quality child care, and to under-invest in important long-term assets like education or retirement savings.
For decades, the overall cost of living and availability of cheap land has caused real estate in metro Atlanta to be more affordable than in other major cities. The city has no natural boundaries. But a recent study claims to show that it is now smarter to rent in metro Atlanta than it is to buy - at least for now.
Is buying a home in Atlanta become unaffordable? ›
New housing data shows potential home buyers in Atlanta have fewer options to own a home In 2021, the Atlanta Realtors Association said the average sales price for a home was $378,000. Now, it's $445,000.
What percentage of US homes are owned by corporations? ›
Large institutions owned roughly 5% of the 14 million single-family rentals nationally in early 2022, according to analysts.
Why is Black Rock buying up homes? ›
The company can build equity.
If the company has borrowed money to purchase the house, it can build equity over time, essentially increasing the percentage of the home it owns outright and can then borrow against later on.
Why do millionaires buy so many houses? ›
Most of the time, owning a house that large is a tax strategy. By financing the house (sometimes 100% financed), the owner gets to write off the mortgage interest on her personal income taxes. Having idle cash, the ability to borrow, and taxes needing reducing is a recipe for buying real estate.
Will inflation cause a housing crash? ›
However, as high inflation costs press down on buyers, it could depress home values. Although he doesn't expect a major housing market crash, Buehler says he sees home values flattening out as inflation nestles into the housing market.
Will the housing market never crash? ›
While the housing market on a national scale has seen prices decline since mid-2022 amid high interest rates, experts are noting that a sudden and abrupt housing market crash is unlikely, based on current market conditions.
Is it good to buy house during inflation? ›
As long as inflation continues to rise, your savings will afford you more purchasing power now than they will in the future. Even if inflation and home prices seem high now, as long as inflation continues to increase house prices, you will be better off buying a house today than you will be tomorrow.
What state has the most unaffordable housing? ›
According to worldpopulationreview.com, Hawaii is the most expensive state to live in, with its housing costing three times the national average. New York and California rank as the second and third most expensive states in which to live, respectively.
Will Gen Z be able to afford houses? ›
Of Gen Zers currently saving money, 56.2% are saving for their first home. The majority of Gen Z (79.8%) believe they can only afford a home that costs less than $200,000. Only 6.9% of Gen Zers believe they can afford a home over $500,000 in their desired timeframe.
1. Hawaii. Hawaii is known for its beautiful beaches, warm climate, and breathtaking scenery. However, it is also the most expensive state to buy a house, with a Zillow Home Value Index of $834,582.
Who made the most from the housing crisis? ›
Subprime Mortgage Crisis
Sometimes referred to as the greatest trade in history, Paulson's firm made a fortune and he earned over $4 billion personally on this trade alone.
Will there be a crash in 2023? ›
According to recent data from CoreLogic, the answer may be no, at least for the time being. While there are signs of a slowdown in the housing market's year-over-year growth rate, the overall data and forecasts suggest that a crash is unlikely in 2023.
What happens to my mortgage if the economy collapses? ›
Recessions and housing market crashes may cause your house's value to decrease. However, your set mortgage rates won't lower, meaning your monthly payments will be higher than your home's worth. While many may dip into their savings to help pay the steep bills, others may need outside assistance.
Will 2023 be a good time to buy a house? ›
Homebuyer.com data analysis indicates that, for first-time home buyers, June 2023 is a good time to buy a house relative to later in the year. This article provides an unbiased look at current mortgage rates, housing market conditions, and market sentiment.
Will house prices go down in 2023 usa? ›
Although home prices are expected to improve in the second half of the year, the California median home price is projected to decrease by 5.6 percent to $776,600 in 2023, down from the median price of $822,300 recorded in 2022.
Will house prices go down if recession happens? ›
Will house prices go down in a recession? While the cost of financing a home typically increases when interest rates are on the rise, home prices themselves may actually decline. “Usually, during a recession or periods of higher interest rates, demand slows and values of homes come down,” says Miller.
Will we ever be able to buy a house? ›
Yes—in two years' time. Both the housing market and millennial demand remain red hot, recent data from the Bank of America suggests. Sixty-seven percent (67%) of millennials said they are likely to purchase a property in the next two years, the 2022 Millennial Home Improvement Survey found.
Will the housing bubble burst in 2024? ›
Despite the fact that there are some troubling trends in the housing market, we're likely not going to see a crash in 2023 or 2024. While house prices are likely to drop, demand for housing caused by America's ongoing housing shortage is likely to keep prices relatively stable.
What are the signs of the housing bubble? ›
There are several signs that indicate a housing bubble, such as rapid price increases, high levels of debt, and a rise in the number of speculative buyers. In the past, housing bubbles have led to significant economic problems, such as the Great Recession of 2008.
According to the 2023 International Housing Affordability Survey by Demographia, three out of the 10 least affordable housing markets are in Australia and New Zealand, two are in Canada and four more are located in the United States. The least affordable housing market is Hong Kong.
Why is high house prices bad for the economy? ›
It concludes that a 50% increase in property prices would raise borrowing costs, reduce investment and productivity, and result in a 35.5% decline in the firms' value-added output.
What are the effects of high house prices? ›
Effect on economic growth
If house prices rise, then the wealth effect is likely to cause an increase in consumer spending. This will cause higher Aggregate Demand (AD), and it is likely to cause an increase in Real GDP and a higher rate of economic growth.
What is the cheapest suburb of Atlanta to live in? ›
Forest Park, GA | The Most Affordable Atlanta Suburb
With an average home sale price that's about $220,000 less than that of the metro area, Forest Park is one of the cheapest places to live in Atlanta regarding the cost of living.
What is the most expensive city to live in Atlanta? ›
Candler Park
Homes in Candler Park average $744k, making it the best place in Atlanta to find a combination of luxury living and thrilling urban adventure.
Are houses in Atlanta overpriced? ›
According to data from Florida Atlantic University, Atlanta has the most overpriced housing market in the United States. The capital of the Peach State beats out multiple Florida cities, Charlotte, North Carolina, and Memphis, Tennessee to take the top spot for 2023.
Why has Atlanta gotten so expensive? ›
Experts also say one of the reasons Atlanta's prices are so much higher than the rest of the country is because so many people are commuting. That means, there's much more demand for gas which drives up the prices and will also affect the supply chain.
Will house prices go down in Georgia? ›
Georgia Housing Prices And Forecast 2023-2024
Homes in Georgia go pending in around 14 days, with 53.6% of sales under list price and 22.6% of sales over list price, as of March 31, 2023. Looking ahead to 2024, the MSA level forecast in Georgia indicates that home prices will continue to rise in most regions.
Is real estate slowing down in Atlanta? ›
How the Atlanta Housing Market Changed in 2022. Single-family home construction slowed down in Atlanta in 2022 compared with 2021. Based on data from the U.S. Census Bureau, permit activity dropped from 2,272 in January 2022 to 1,348 in January 2023 – a 41% year-over-year decrease.
Who owns most homes in America? ›
Homeowner rates by race and ethnicity
Homeownership statistics by race show that the highest rates of homeownership are held by White households. Although homeownership rates for both Asian and Hispanic homeowners are above or around 50%, respectively, the rate for Black homeownership remains lower at just above 43%.
Largest Real Estate Companies Research Summary
The largest real estate company in the world is Keller Williams Realty, with a revenue of $381.4 billion. As of 2023, the global real estate industry has a market size of $4.4 trillion. Over 5.8 million housing transactions were completed in the U.S. in 2022.
Who owns most rental properties? ›
Most rental properties are owned by individuals, but only a small share of individuals own rental property, according to IRS income-tax data. In 2018, 6.7% of individual tax filers (about 10.3 million) reported owning rental properties. Those filers reported owning 1.72 properties on average.
Why is black homeownership low? ›
Historical discrimination through exclusionary housing policies and practices, plus a dwindling supply of housing and a variety of other factors have limited Black families from purchasing homes at the same rate as their White counterparts.
How many US homes does BlackRock own? ›
BLACKROCK AND SINGLE-FAMILY HOMES
Invitation Homes, for example, has approximately 80,000 homes for lease across the country and is the largest landlord for single-family homes in the United States (here) (here).
Are black homes devalued? ›
Neighborhoods with a majority of Latino or Hispanic, Asian American, or white residents do not experience home price devaluation, using the same model. Appraisal bias explains a fraction of the devaluation of homes in Black neighborhoods: approximately 9% to 19%, depending on modeling approaches.
Do millionaires pay off their mortgage? ›
Most have paid off their mortgages. In 2020, 58% of the state's equity millionaires owned their homes free and clear. Statewide, there has been a dramatic rise in the number of Californians who have paid off their mortgages, from 1.6 million households in 2000 to 2.4 million in 2020.
Why do rich people rent houses and not buy? ›
Most wealthy people tend to be entrepreneurial and prefer to invest in their own business or other forms of investment. Plus, not to mention all the hidden costs of owning a home such as property taxes, maintenance fees and unexpected repairs all on top of the monthly mortgage payment.
Why is buying a house so hard 2023? ›
“In 2023, it's gonna be tough for first-time buyers, because of higher interest rates, because of tighter supply, and also because of the fact that there might be some uncertainty in the economy,” said Oscar Wei, deputy chief economist at the Realtors group. Stories like this keep all Californians informed.
Will the housing market ever correct itself? ›
The housing market correction is an ongoing process that starts when a significant decrease in demand causes prices to fall. It will continue until demand increases or the supply of homes increases. As long as the demand for homes is weaker than it once was, we will continue to see a decline in home prices.
Will 2025 be a good time to buy a house? ›
After falling in 2023 and 2024, home prices are predicted to plateau in 2025 before rising again at just above the rate of inflation. However, due to the spike in home values from 2020 through 2022 due to record-low mortgage rates, median sales prices will take at least until 2027 to regain the highs of mid-2022.
In 2008, the housing market bubble burst when subprime mortgages, a huge consumer debt load, and crashing home values converged. Homeowners began defaulting on the home loans.
Will my house be worth less in 2023? ›
Zillow still predicts that the vast majority of regional housing markets will see home values appreciating in 2023. Among the 897 regional housing markets Zillow economists analyzed, 853 markets are predicted to see rising house prices over the next twelve months ending with April 2024.
How much do I need to make to have a 300K mortgage? ›
To purchase a $300K house, you may need to make between $50,000 and $74,500 a year. This is a rule of thumb, and the specific salary will vary depending on your credit score, debt-to-income ratio, type of home loan, loan term, and mortgage rate.
Is there going to be a housing crash 2024? ›
Despite the fact that there are some troubling trends in the housing market, we're likely not going to see a crash in 2023 or 2024. While house prices are likely to drop, demand for housing caused by America's ongoing housing shortage is likely to keep prices relatively stable.
What happens to my mortgage if the housing market crashes? ›
What happens to my mortgage if the housing market crashes? A housing market crash won't affect your existing fixed-rate mortgage. However, if the value of your home drops below your purchase price, then you'll be making payments that are greater than the worth of your property.
What are the chances of the housing market crashing? ›
While a housing price correction is expected, we aren't in a housing bubble. Demand for homes remains high, and there are fewer home sellers than there were in 2022. And while the market is cooling, experts don't expect an actual housing crash or a housing bubble burst in 2023.
How much will home be worth in 5 years? ›
According to a report by Zillow, home values are projected to increase by 5.5% over the next year, slower than the 16.9% increase seen in 2021. Zillow predicts that home values will increase by 3.5% in 2023, 3.4% in 2024, 3.3% in 2025, and 3.2% in 2026.
What should you not do when staging a house? ›
20 Most Common Staging Mistakes
- Too Much Furniture.
- Furniture That Doesn't Fit the Room.
- Household Smells.
- Keeping Knick Knacks on Display.
- Excessive Dark Paint.
- Drastically Different Paint Colors Throughout the Home.
- Pushing All Furniture Against the Walls.
- A Lack of Light.
Fannie Mae, Mortgage Bankers Association and National Association of Realtors expect mortgage rates to drop through the first quarter of 2024, by half a percentage point to about nine-tenths of a percentage point. Figures are the predicted quarterly average rates for the 30-year fixed-rate mortgage.
Who was president when the housing market crashed? ›
In 1995 Clinton loosened housing rules by rewriting the Community Reinvestment Act, which put added pressure on banks to lend in low-income neighborhoods.
The 2000s United States housing bubble was a real-estate bubble affecting over half of the U.S. states. It was the impetus for the subprime mortgage crisis. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2011.
