Are Bigger Homes a Better Investment? Analyzing Home Size Trends and Affordability in 2024

Based on recent market analysis, the demand for larger homes has increased significantly, but smaller, more affordable properties are experiencing faster price growth. This creates a complex landscape for buyers weighing space against budget. While sales of large homes (3,000-5,000 sq. ft.) grew nearly ten times faster than small homes (300-1,500 sq. ft.) in a recent period, the price of typical small homes rose 8.1% year-over-year, outpacing the 6.7% increase for large homes. This indicates that affordability remains the primary driver for most buyers, even as preferences shift toward more space.

Why Are Buyers Searching for Larger Homes?

The average minimum square footage in user home searches has consistently grown over the past five years, a trend that accelerated significantly. This shift is largely attributed to changing lifestyles, where designated spaces for remote work and schooling have become a priority for many families. A survey of prospective buyers found that over 20% now desire a home with dedicated office space and more outdoor or recreational area.

This demand is reflected in market activity. Sales of large homes surged by 21.2% year-over-year, compared to a more modest 2.3% increase for small homes. Real estate agents report that buyers are increasingly willing to trade urban convenience for suburban or rural space, seeking properties with yards and extra rooms for the same price as a smaller home in a city center. This has led to stronger price growth in suburban (9.2%) and rural (11.3%) areas compared to urban centers (6.7%).

How Does Affordability Impact the Market for Different Home Sizes?

Despite the strong demand for space, economic realities keep affordability at the forefront of most purchasing decisions. The median price of a large home is significantly higher than that of a small home, creating a clear economic divide among buyers. While some households with stable remote-work options can relocate to access more space, a substantial portion of buyers must prioritize cost.

This financial pressure explains why the market for smaller homes remains competitive. The typical small home sold in 28 days, 19 days faster than the typical large home. Nearly 39% of small homes went under contract within two weeks, indicating fierce competition among buyers with limited budgets. The higher price growth for smaller homes is a direct result of this competition, fueled by a lack of new listings, which were down 8.3% year-over-year for small homes.

What is the Inventory Situation for Large vs. Small Homes?

The supply dynamics further highlight the market split. New listings for large homes increased by 7.6%, as some homeowners see an opportunity to capitalize on the demand for space. However, total housing supply was down about 25% across all home sizes because these new large-home listings are being purchased quickly.

For small and medium-sized homes, a decline in new listings has intensified the supply shortage. This scarcity contributes to the faster price appreciation and quicker sales for smaller properties. The data suggests that while builders may respond to demand by constructing more large homes, the entry-level market continues to face significant inventory constraints.

Key Takeaways for Buyers and Sellers

• For Buyers Seeking Space: Be prepared for competition, but know that new construction may slowly ease inventory pressures on larger homes. If you have the financial flexibility, exploring suburbs or rural areas can provide more value per square foot.
• For Buyers Prioritizing Affordability: The market for small homes is highly competitive. Getting pre-approved and being ready to act quickly is crucial. Consider homes that need minor updates, which may have less competition.
• For Sellers of Larger Homes: Current demand trends are in your favor. Based on our experience assessment, well-priced large homes in desirable locations are selling rapidly. The increase in buyer desire for home offices and yards can be a major selling point.
• For Sellers of Smaller Homes: You are in a strong seller's market. Low inventory means your home will likely attract multiple offers, potentially allowing for a quick sale at or above the asking price.

The central conflict between the desire for space and the need for affordability continues to define the housing market. While the dream of a larger home is powerful, budget constraints ensure that smaller, more affordable properties remain a hot commodity.