TAMPA, Fla. (WFLA) — Inflation comes for all items, products, and prices eventually. Now, a new analysis of home prices compared to their sizes says shrinkflation is hitting home prices compared to their actual space.
The Zillow report examined home pricing before and after the pandemic, using a “typical $1 million home” as the baseline. Their report found that single-family homes priced in the million-dollar range were “much smaller” than similarly priced homes in 2019. Additionally, the homes are physically smaller and “have fewer bathrooms” while being older.
Construction of new homes has slowed throughout the pandemic due to supply chain and pricing issues. Notably, a recent report by the U.S. Census Bureau showed that building permits in July had increased just 1.1% compared to the year before, but had fallen 4.3% from June.
Authorizations for single-family home construction nationally were reported at a rate of 928,000 compared to 970,000 permits in June. The next permit level report comes out Sept. 20, showing permit fluctuations in August.
Zillow said the COVID-19 pandemic was “the hottest housing market in recent history, with annual home value growth surpassing 20% and for-sale inventory levels reaching historic lows. One result of these abnormally hot conditions is that homes are selling for more than $1 million much more often, while the typical million-dollar home looks a lot different than it did heading into the pandemic.”
The report said the effect was more noticeable in some areas than others, such as Phoenix, Ariz. or Austin, Texas, among others.
Put simply, a Zillow spokesperson said, “Homes that sold near $1 million are almost 400 square feet smaller than in 2020.” However, the data they provided also showed that home sizes were starting to increase in the most recent fiscal quarter, compared to the previous one. Still, compared to the “early 2020 peak” at start of the pandemic, the space within a $1 million home is 397 square feet smaller, from 2020’s Q2 to 2022’s.
The average size of a million-dollar home in the U.S. is currently 2,624 square feet. In the Tampa area, the size of a $1 million home is a bit bigger than the national average, measured at 2,690 square feet. Broken down by square foot, Zillow said Tampa home buyers are spending $372 per square foot, a $306 per foot increase from the spring of 2020.
Most of the homes in that price range in the Tampa area are about 30 years old and have four bedrooms and three bathrooms. The report said Tampa $1 million homes had a 202% increase in sales volume from spring 2019 to spring 2022. It was the fourth largest sales volume increase nationally, behind Portland, Oreg., Austin, Texas, and Riverside, Cali.
Loss of bathrooms were “the biggest casualty” when it came to drops in space across the U.S., according to the Zillow report. Still, “regardless of where you live, you can be confident that your $1 million will get you at least three bedrooms, two bathrooms, and just shy of 1,400 square feet,” according to Zillow.
In addition to the higher price for smaller houses, mortgage rates have again gone up. The current rate for 30-year mortgages reported by federally-backed company Freddie Mac shows interest rates at 5.66%. The week before it was 5.55%, meaning home prices are higher and you’ll pay more per month to get them, but the space available remains smaller than previous years.
Freddie Mac’s chief economist said the market is reacting to a change of monetary policy in the Federal Reserve, the portion of the federal government working to lower inflation levels for the national economy.
“The market’s renewed perception of a more aggressive monetary policy stance has driven mortgage rates up to almost double what they were a year ago,” Sam Khater, Freddie Mac’s Chief Economist, said. “The increase in mortgage rates is coming at a particularly vulnerable time for the housing market as sellers are recalibrating their pricing due to lower purchase demand, likely resulting in continued price growth deceleration.”