American homebuyers are downsizing after the median price per square foot increased 20.1% to a record $230 in March home sales, according to Redfin. At the height of the pandemic, the typical U.S. home that went under contract was roughly 1,791 square feet, a boost in both size and price from pre-pandemic homes that buyers could afford at a time when mortgage rates were still at record lows.
Now, as mortgage rates creep past 5%, buyers are settling for smaller homes to stay on budget. The average U.S. home that went under contract in March was 1,720 square feet, and during the same month, the median U.S. home-sale price rose 17.3% year-over-year to a record high of $413,000.
“Buyers are purchasing smaller homes because usually the bigger the home, the more expensive it is,” said Redfin Chief Economist Daryl Fairweather. “Even though we’re starting to see signs the housing market is cooling down, it’s still difficult for buyers on a budget to find everything they’re looking for in a home. That’s because there’s still a very limited supply of homes for sale, along with sky-high prices for the ones that are on the market and rising mortgage rates. If buyers don’t want to compromise on location, they probably need to settle for a smaller home.”