Key takeout
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Typical mortgage payments doubled between 2020 and 2024, but today’s new homes are smaller than they’ve been in over a decade.
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Experts warn that home size is not always the best measure of value, especially in competitive markets with rising home prices.
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Buying a small house you can buy now is generally a better move than waiting to buy a bigger house.
If you were hoping to buy a house, you will be allowed to feel discouraged. Home prices continue to rise, mortgage rates flirt at 7% – and new home sizes are shrinking, so you could potentially pay more for a small home. According to Bankrate’s Rent vs. Buy Study, on the other side of the housing equation, it’s cheaper to rent at all the largest metros across the country.
For some, lifetime rentals are really the way to go. But if you tend to buy and you can afford monthly payments, don’t let the statistics postpone you. Experts say that a home size is not necessarily the best way to think about the value of a home. It’s usually better to buy earlier.
Buyers pay more for small homes
Looking at the numbers, it is expected that buying a home is a difficult one these days. Nationally, typical mortgage payments have doubled between 2020 and 2024, from around $1,100 to about $2,200 thanks to rising home prices and interest rates.
And while mortgage interest rates are no longer rising, home prices continue to rise. In fact, according to the National Association of Realtors (NAR), the median existing home prices rose to $414,000 in April 2025, marking the 22nd consecutive month of price increases compared to the previous year.
At the same time, the median new home was 2,150 square feet in 2024, according to the US Census Bureau. It is the smallest image in 15 years.
“Many buyers are forced to pay more for smaller homes,” says Melissa Cohn, regional vice president of William Raveis Mortgage.
“This trend isn’t limited to new builds,” says Anthony Kellum, founder of Kellum Mortgage.
“Existing homes are also sold at higher price points, and can outweigh value in area and condition, especially in hot markets where demand exceeds supply.”
It’s all a place
Nationally, this trend is heading towards smaller and more expensive homes, which is most true in the Northeast and Midwest. According to data from Realtor.com, many parts of the South, which were in high demand two or three years ago, are cooled considerably, especially in Texas and Florida.
The contrast is partly due to differences in housing inventory. According to Realtor.com, the South has seen a 33.3% growth in home inventory year-over-year, surpassing pre-pandemic norms. Meanwhile, the Northeast and Midwest still have a big gap between supply and demand. This has been declining in demand over the past few years, but remains competitive and cost-effective.
This means that some buyers are more likely to pay more for smaller homes than others, but don’t panic, especially if you find yourself in a competitive market. In Kellum’s case, location is often a better indicator of value than area.
“Small homes in strong locations often outweigh larger homes in unwanted areas,” Kelham says. According to Kellum, school districts, community development and resale values ​​should be considered.
Smaller homes mean smaller homes cost
It is also worth noting that small homes mean lower maintenance costs and lower homeowners’ premiums.
“The area of ​​your home will directly affect your home’s insurance costs,” says Shannon Martin, Bankrate insurance expert. “The bigger the house, the more materials and labor are needed to repair it when it is damaged. Keep in mind that increasing housing restrictions will also increase the limits on other structures, personal property and losses of use.”
In fact, 29% of Americans surveyed said they would consider shrinking to buy a new home, according to a Bankrate home affordability report.
“The balance on a mortgage is just one part,” Kellum says. “Focus on total expenses, principal, interest, taxes and insurance and check it according to your budget.”
There’s no “perfect time” to buy
The rising costs can be particularly uncomfortable for first-time home buyers who want to skip the starter home and head straight to their eternal home.
Traditionally, buyers have used starter homes as a stepping stone to something more permanent, but this attitude may be changing. A recent survey by BMO shows that 66% of Gen Z Renters and 61% of millennial renters prefer to prefer eternal homes to buy their first home.
The relative affordability of rent encourages this retention pattern. Many buyers are waiting for the right home at the right price and waiting for the right time to make the move.
But according to Kellum, buyers need to balance. You should want to stay at home for at least 5 years to recover the costs of closure and travel. The more you buy, the sooner you can start building equity. That could mean compromise now with future home improvements or plans for another home.
And there is no guarantee that you will have more affordable time to buy a home. Even if demand is lagging, other factors such as tariffs and labor shortages could continue to cause prices to rise. As we have seen in recent years, in addition to rising home prices, insurance and taxes have risen. And Kicker: Further inflation could also raise mortgage rates.
“Don’t wait for ‘perfection’,” Kellam says. “The ideal home may not be in today’s price range, but getting on the market is more important than waiting for a bystander.”