Returning to Work & Cities

At the height of the COVID-19 pandemic, people bought homes far from city centers, where they could get more space for less money. But now that life is returning to normal and more companies are requiring employees to go back to the office, having that extra square footage may seem less important.

Faced with the prospect of longer commute times, many buyers may be looking for smaller homes closer to the city, while others are returning to urban life and purchasing townhomes and condos, which also have a smaller footprint. Demand has not only returned to pre-pandemic 2019 levels, but in many metropolitan locations, it has exceeded sales year-over-year.

Despite the affluent consumer’s shift toward purchasing smaller properties, it is important to remember that home size desirability has fluctuated historically. For example, home size rose from 2009 to 2015 as entry-level new construction was constrained, per NAHB. Home size then declined between 2016 and 2020 as more starter homes were developed.

The expectation now is that home size may face “opposing determinants,” according to NAHB. Even though affluent consumers may actually prefer to have more space due to the changing role of homes as live-workplay-learn environments, tighter house budgets due to higher prices and interest rates – coupled with limited inventory for larger properties – may dampen sales of some large properties in the near future. Additionally, those consumers who don’t need to move and are not constrained financially will continue to look elsewhere for opportunities to grow their wealth through investments in smaller homes.