A new report points to an angle worth raising with buyers on the fence
While Wednesday’s rate hike by the Federal Reserve doesn’t have a direct impact on mortgage rates, it’s a reminder of the tough overall economic conditions facing homebuyers.
Buyers looking to get into new homes are battling inflation concerns that weigh on mortgage qualification numbers and impact the overall price of a new home.
One way home prices are being kept in check during this stretch of materials inflation is by making homes smaller. However, home prices are still challengingly high, especially for first-time buyers.
The question is whether shrinking home sizes can eventually help brokers get more people qualified for these smaller homes. One analyst said the latest numbers show people doing what they can to make homeownership a little more affordable.
Matt Schulz (pictured top), chief consumer finance analyst at LendingTree, said the trend reflects a broader shift already underway in how people think about buying a home.
"It's not that surprising, but it was just kind of further proof of how people are adjusting what they're looking for to help make homes a little more affordable," Schulz told Mortgage Professional America. "Builders seem to be recognizing the desire to have smaller places and to give the people what they want. The average size is down from a decade ago, but it's still up significantly from 20 years ago, so that just tells you things have shifted a little bit."
Reducing the hidden costs
The average new single-family home sold in the US measured 2,409 square feet in 2025, down 11.6% from 2,724 square feet in 2015, according to a LendingTree analysis of US Census Bureau data. Over that same stretch, the average price per square foot rose 71.9%, from $100.02 to $171.95.
Schulz said that upfront price-per-square-foot premium is exactly the kind of sticker shock brokers can help a client look past.
"It's another example of how important it is to think about long-term recurring costs outside of just the mortgage payment," he said. "A smaller home, even if you're paying a little bit more per square foot for it, those things can be a little cheaper to keep cool when it's 105 degrees out, and there are just fewer things to repair and maintain. Those reduced costs can really make a significant difference."
He said that one way brokers can sell these smaller houses to homebuyers is to treat the purchase as a starting point rather than a final destination.
"Especially if the smaller home is just a starter home, keeping all of those costs down to the degree you can allows you to keep putting money aside," he said. "You can potentially use that in however many years to upgrade to a little bigger home that might fit your family better."
Making loan qualification easier
The connection between a smaller home and a smaller mortgage, Schulz said, gives brokers another selling point with homebuyers.
"I definitely think that's the case," he said. "It's so easy to get stars in your eyes when it comes to buying a home, thinking that spending a little bit more and getting a little bit bigger house, thinking it through over 30 years, maybe the costs aren't that significant. But especially in a time when affordability is such an issue, giving people options that help them keep things a little bit more affordable makes all the sense in the world."
He said that pitch sometimes requires homebuyers to reset their own expectations about what a first purchase should look like.
"That might mean people need to understand that maybe this first home isn't their dream home, or maybe lacks a couple of things that might have been high on their want list," he said. "Sometimes it's just about getting in the door and getting started, and finding something that's affordable and letting that equity grow."
It’s a challenging time in more than just the mortgage space. Costs are rising everywhere, and Schulz said one of the biggest hurdles for potential buyers is keeping them from being overwhelmed by the rising cost of just about everything.
"Looking at the numbers, we're talking about going from $62 a square foot to $172 a square foot over 30 years, just a little shy of tripling," he said. "That is not something you would imagine would be sustainable. When you consider that it's happening at the same time inflation has risen, but also things like college costs have risen so fast, it's just reason number 5,000 that people feel like life has become so unaffordable that they want to throw up their hands and say, well, I guess I'm a renter from here on out."
Schulz said that’s why people are looking for any solution to get into an affordable home. Some are even considering 3D-printed homes, despite the long-term durability remaining an unknown.
"It could speak to people's interest in smaller homes," he said. "Looking back at the tiny house trend of a few years back, you could certainly think about a 3D-printed home kind of as a tiny home, as opposed to a 2,000-square-foot home in a master-planned community. It could just be about those sorts of options as well."
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