Are new homes starting to get bigger?  

After a few years of shrinkflation in the new home sector, builders may be looking to upsize.

The median size of new single-family housing starts was 2,205 square feet in the final quarter of 2024, according to the latest U.S. Census data. That's the highest reading since mid-2023 and reverses a trend of declining square footage for new builds. 

Average square footage also increased last quarter, jumping from the mid-2,300 range to 2,417 square feet. For the year, however, both the median (2,153) and average (2,370) square footage were down vs. 2023.

Betting on lower rates? The recent shift toward larger footprints could be tied to expectations that long-term rates will decline, noted Robert Dietz, chief economist for the National Association of Home Builders. While the direction of rates is now less certain given concerns about inflation, during the fourth quarter, builders were feeling more optimistic about their sales outlook for 2025.

Confidence and housing starts both declined in January, however, so it's too soon to know if home sizes will continue to increase or if it was a one-quarter blip. 

Additionally, other factors, including housing affordability and construction costs, affect the new home market.

"Improvement for either of these factors would help increase home buyer purchasing power," Dietz said, adding that demographic changes are also driving demand for larger homes, with younger homebuyers seeking more space for growing families.

Size, prices shift in response to affordability issues: As new homes have gotten smaller, the price gap between new and existing homes has narrowed. In a separate report, NAHB found that new home median prices at the end of 2024 ($419,200) was nearly the same as existing home median prices ($410,100). During the second and third quarter of 2024, existing home prices were actually higher than new home prices, which hadn't happened since 1989.

That's because builders have more flexibility in how they respond to buyer demand and the broader economic climate, said Onnah Dereski, manager of economic services at the NAHB.

"Despite various challenges facing the industry, home builders are adapting to affordability challenges by selling smaller lots, constructing smaller homes, and offering incentives," Dereski said.

If home sizes continue to increase, it would be a sign that affordability is improving. Dietz noted that the square footage of new homes increased between 2009-2013 as the sector lost market share while the U.S. was recovering from the global financial meltdown, and again in 2021 as interest rates reached historic lows.