US Housing Market Squeeze: Smaller Homes, Higher Prices as Affordability Craters

The American dream of homeownership is shrinking—literally. New US homes have hit a twenty-year low in size, not by choice but by financial necessity. The median price of a new home has soared 38% since 2019 to $403,800, while the cost per square foot has spiked 57% to $168. Buyers are now paying more for less space, a trend with no end in sight.

Mortgage rates have nearly tripled since January 2021, from 2.65% to 6.75%, slashing purchasing power. A typical $320,000 loan now costs an extra $600 per month—$7,200 annually—pushing affordability to crisis levels. Only 28% of listed homes remain within reach of median-income households, down from 30% earlier this year.

"Higher interest rates have eroded the real-world purchasing power of the typical American household," says Danielle Hale, Realtor.com's chief economist. The squeeze is forcing brutal trade-offs: smaller homes, distant suburbs, or delayed ownership altogether.