Due to supply shortages, home prices are rising rapidly, and interest rates are falling without anticipation, causing buyers' purchasing power to decline. In response, construction companies have begun building smaller houses.
The graph above shows the average square footage of newly built homes by quarter.
As you can see, during the COVID era when interest rates were low, the size of homes was increasing. However, as interest rates began to rise and buyers' purchasing power started to decrease, the size of newly built homes began to decrease.
Currently, the real estate market is experiencing a shortage of supply, and interest rates are high, causing home prices to rise rapidly. However, it's unlikely that household incomes are rising at a pace to keep up with this increase. Consequently, buyers' purchasing power is decreasing. Construction companies are well aware of this situation. Therefore, they are ultimately building homes that will sell. Additionally, they may offer incentives, aggressive price reductions, or promotions to make their products more appealing.
Ultimately, buyers will have more affordable options available to them. However, in the long run, the supply of larger homes is likely to decrease, leading to a higher probability of price increases for homes above a certain size.
I'll be back with more helpful articles in the future.
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