Consumer Are Buying Smaller Homes - 8 Reasons to Think Smaller is Better

Housing market data is suggesting that the average home is shrinking in terms of square-footage. There are many reasons for this, the primary being conservatism. Consumers are no longer buying their home with investment and big equity gains in mind as they were during the early part of 2000. That rationale is just too risky so people are buying more conservatively while still living very comfortably.

Consider these 8 reasons to buy a smaller home if you are in the market to make a purchase:

1. Family Size. Generation X and Y are both having fewer children than their parents. As the result, there is no need for all of those extra bedrooms. If you are a family of four, a three bedroom home that includes a master and two additional living spaces is just enough.
2. Income. How much money is consistently being deposited in your bank account at the end of each month is an obvious reason to think smaller. Even if the ending balance is a handsome one, these days, there are lots of expenses grabbing our attention besides the monthly mortgage payment. Being "house poor" is so 2004! Today, people are more interested in saving for their retirement or spending on a fun family vacation than barely making their house payment.
3. Existing Equity. Unfortunately, more and more people simply do not have enough equity accrued in their current home to be able to transfer it towards another significantly larger home. With credit hard to come by, lenders are requiring a sizeable down payment to qualify for a new home loan - typically as much as 20%. For a $400,000 home, that is an $80,000 down payment that will require some form of home equity or cash.
4. Tight Credit Standards. Having just mentioned credit that is tough to come by, many home buyers are simply not getting approved for large home loans. Jumbo loans are a thing of the past for most people. Further, maxing out your credit line is not a good strategy to keep your credit score high. Instead, buy a home you can afford without having to take on too much debt relative to your overall financial situation.
5. Energy Savings. Smaller homes simply mean less energy consumption in the form of heating, air conditioning, water and electricity bills. Aside from the monthly savings a smaller home can provide, more people are environmentally conscious and would rather not have a larger than necessary carbon footprint.
6. Location, Location, Location. As always, location is the number one rule in real estate and more people are choosing to live closer to major urban living areas, which tends to mean smaller living spaces. The benefits are potentially great though. Living close to an urban center can help reduce additional monthly costs such as transportation and fuel. Plus, urban living provides a rich and entertaining lifestyle.
7. Resale Value. Figures from the National Association of Realtors suggest that sales have been shifting toward lower-priced segments of the market - less than $350,000. In other words, if more homes are selling below the $350,000 price point, this means homes priced above this level simply are not moving as quickly, if at all. Based on this statistic, it is logical to assume if you ever want to sell in the future without having to reduce your asking price, a home selling below $350,000 will fare much better on the market.
8. Modesty. Living within your means is chic, especially after the economic woes of the first part of this century. Those who comfortably live within their means today will have a much brighter future tomorrow because more money will be left for savings, college accounts, retirement and other activities that make living life fun. Because homes are not appreciating as quickly as they were a few years ago, there is no reason to think that by purchasing a home larger than what you need will end up paying dividends later on. It likely will not. Therefore, buy a home you can afford to live in now and be comfortable and happy as the result.

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