High prices keep some renters from upsizing when they buy a home

In yet another illustration of how high prices are squeezing homebuyers, a growing share of Americans are buying houses that are smaller than the ones they’d been renting.

That’s according to a new analysis from mortgage giant Freddie Mac, which found that, as of September 2024, 64 percent of buyers who moved out of single-family rental houses purchased homes that were bigger than their rentals. This is down from a high of 71 percent in 2013.

“This shift to fewer people moving up is a logical economic response to worsening affordability,” according to the Freddie Mac researchers, who analyzed more than 20 years of loan data.

Some buyers sacrificing square footage

The researchers liken this trend to the choices you might make at the grocery store. If you see beef is twice as expensive as chicken, you might pick poultry for dinner. If you want to buy a house when home prices are at record highs, you might compromise on square footage.

“This downsizing effect helps explain why housing demand has held up as well as it has in the face of worsening affordability, in addition to other positive factors, such as favorable age demographics and a strong labor market,” the researchers write.

Learn more: How to calculate square footage

Even higher-income buyers may make trade-offs

The affordability squeeze has already altered the profile of the average homebuyer. In one telling statistic, the National Association of Realtors reports that the typical age of first-time buyers reached 38 in 2024, a record high. Meanwhile, the share of first-time buyers fell to 24 percent of buyers overall, a record low.

A Bankrate study this year found that a buyer needed an income of nearly $111,000 to afford a median-priced home, up 46 percent compared to early 2020. Most homebuyers are couples, so that figure represents their combined incomes.

The Freddie Mac analysis doesn’t indicate where buyers moved. It’s possible that some who downsized were purchasing homes closer to city centers, where values tend to be higher.

“I suspect a lot of those folks who look like they’re moving to smaller places were moving closer in,” says Sam Khater, Freddie Mac’s chief economist.

For decades, it was a given that Americans kept moving to larger homes until they retired and downsized. But this glimpse of buyer behavior shows that even those who can afford to buy in more expensive areas are reining in their expectations.

How to stretch your homebuying budget

If you’re worried about making serious compromises in order to find an affordable home, there are ways to help your savings go further:

• Look for loans with low down payment requirements: Fannie Mae’s HomeReady mortgages and Freddie Mac’s Home Possible loans allow borrowers who make less than 80 percent of their neighborhoods’ median income to obtain a conventional loan with just 3 percent down. Government-backed programs may also accept low down payments. FHA loans, which are insured by the Federal Housing Administration, allow borrowers to put down just 3.5 percent with a credit score of 580 or higher. USDA loans, guaranteed by the U.S. Department of Agriculture, and VA loans, guaranteed by the U.S. Department of Veterans Affairs, require no down payment for most borrowers.
• Consider down payment assistance: There are many first-time homebuyer and down payment assistance programs. Every state has these programs, and there are more than 2,000 such initiatives available nationally, says Rob Chrane, CEO of Down Payment Resource.
• Get creative: Many first-time buyers are turning to alternative homebuying strategies, such as house-hacking and co-buying. House-hacking can mean buying a duplex or triplex, living in one unit and renting out the other(s) to help cover the mortgage. Co-buying refers to purchasing a home with someone who’s not your spouse.
• Think long-term: If your first home ends up being a cheaper condo or townhome with less space, keep in mind it might not be your forever home. For many first-time buyers, these types of properties are a stepping stone that helps get them out of renting sooner.