The early days of the pandemic created a desire for more space to learn, work, and play. That trend is reversing as costs rise.
The early days of the pandemic created a desire for more space to learn, work, and play. In the housing market, that meant increased demand for bigger homes on larger lots in less dense areas.
But that trend seems to be reversing as rising home prices and mortgage rates put spacious homes out of reach for more and more homebuyers.
According to Redfin, the median size of homes that went under contract in March was 1,720 square feet. That’s down 31 square feet from the same period last year and 71 square feet from the peak in June 2020.
In fact, median home size returned to pre-pandemic levels in mid-March, but at nearly $60 more per square foot of house.
Not only is each square foot more expensive, financing a home purchase is also more expensive than early and peak pandemic. The average 30-year fixed mortgage rate, according to the Freddie Mac Primary Mortgage Market Survey, was around 3% when the median home size peaked in June 2021. By mid-April 2022, the average rates were in the 5’s.
An additional 2 percentage points on the mortgage rate adds roughly $350 to the monthly payment on a $300,000 loan.
Condos make a comeback
Given the rising costs, it’s no surprise that median home size is coming back down. But it’s not the only factor. We’re also seeing homebuyers return to cities as pandemic fears fade and employees are called back to offices.
This is evident in condo demand, which, like single-family homes, is far outpacing supply and driving up prices.
According to Redfin, the median sale price for condos hit a record $319,000 in February 2022 with supply down 28% from the previous year. More than half went under contract within two weeks of listing and just under two-thirds received more than one offer.
Demand for condos likely increased since this data was reported, as several of the nation’s largest employers called workers back to the office in March and April.
Between the need for space, low mortgage rates, and a sudden dose of YOLO(You Only Live Once), the pandemic created the ideal conditions for buying larger, more distant single-family homes. But as the pandemic fades and housing costs rise, the pendulum is beginning to swing back toward smaller, more dense options.