Buyers seeing higher monthly payment, less square footage
The American home is shrinking.
With interest rates rising and mortgage costs with them, homebuilders are pulling in yards, tightening living rooms and lopping off bedrooms in an attempt to keep the monthly payment in line with what families can afford. The result is homebuyers paying more and getting less, while far-flung developments where people move for size and space are now being re-imagined as higher-density communities where single-family houses have apartment-size proportions.
In a recent survey of architects, John Burns Research and Consulting found that about half expected their average house size to decline. New communities will have more duplexes or small-lot single-family homes that are just a few feet apart. Even in Texas, where land is abundant, builders are adding more homes per acre, the company found.
“The monthly payment matters more than anything else and builders have responded with smaller, more efficient homes,” said John Burns, the company’s CEO.
Consider Hayden Homes, a Pacific Northwest builder that focuses on small towns and exurbs where middle-class families (its typical buyer has a household income of $90,000 a year) have historically traded more house for a longer commute.
Two years ago, when interest rates were low, the average Hayden home was a 1,900-square-foot three-bedroom that cost $500,000, or about $2,000 a month, said president Steve Klingman in an interview. This assumed a 5% down payment and a 30-year fixed-rate mortgage with a 3% interest rate.
Now, as borrowing costs consume more of buyers’ mortgage payments, Hayden is lowering prices and square footage to keep customers’ payments stable. The average Hayden home is now 1,550 square feet and costs about $400,000, or $2,100 a month, Klingman said. To buy it, however, a customer has to produce a 10% down payment and, even with incentives, is paying a 6% rate on a 30-year fixed-rate mortgage.
“We are reconfiguring our floor plans, our features and community design all to get to that payment buyers can afford,” Klingman said. “People want to own if we can make it attainable.”
In dense areas such as Southern California, the high cost of land has long led developers to focus on compact homes. Tradeoffs such as a side yard instead of a backyard, or a garage that opens to the street instead of a driveway, have compressed size and reduced cost. Now those kinds of urban designs are arriving in the exurbs.
For instance, in Hayden’s hometown, Redmond, Oregon, a city of 35,000 about 30 minutes from Bend, Oregon, its Cinder Butte Village development now has homes as small as 400 square feet (a one-bedroom, one-bath with a garage on the back alley).
Klingman expects smaller homes to drive the market in the coming years. Hayden shifted all of its floor plans down as mortgage rates started rising and has prototypes for new communities that are twice as dense as the ones it built during the pandemic.
“I think this is for the long haul,” Klingman said.
Homebuilders have to sell to survive. And in a market where borrowing costs are consuming more of their buyers’ payments, and after years of rising material and labor costs, that means selling less house.
In its survey, the John Burns consultancy found that dining and children’s rooms are being sacrificed to preserve bigger kitchens and primary bedrooms. To do this, builders are replacing tubs with showers. They’re expanding kitchen islands so they double as a dinner table.
Bigger is still better, even if it only feels like it.