A for sale sign in front of a home listed at over $1 million on April 29, 2022 in San Francisco.
Justin Sullivan | Getty Images
Grocery shoppers aren’t the only ones dealing with the phenomenon known as “shrinkflation,” which occurs when the price of something stays the same or goes up even though the item gets smaller.
Home buyers also need to worry about “shrinkflation”. The trend is hitting homes, especially those in the $1 million range, where the size of homes buyers are getting for their money is shrinking, according to new search from the real estate site Zillow.
It’s one way inflation hits the housing market, according to Skylar Olsen, chief economist at Zillow.
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The money won’t go that far for homes at any price, she said. But the $1 million threshold is particularly eye-catching because of the expectations buyers typically place on it.
“A million dollars isn’t as luxurious as it used to be,” Olsen said.
The idea that a million dollars is enough to buy a typical home has been around for some time in California. Now, more markets are also experiencing that same sentiment, Olsen said.
More than twice as many homes over $1 million sold this spring compared to two years ago, according to Zillow. The largest increases occurred in Austin, Texas; Portland, Oregon; and Riverside, California.
Yet million-dollar homes are getting smaller, according to floor plan data from Zillow’s listings. These homes peaked at 3,021 square feet in mid-2020 and fell to 2,530 at the start of this year.
However, home size at this price point has now dropped to 2,624 square feet, still 397 square feet less than the 2020 peak.
Since 2019, the typical home selling for around $1 million has declined in nearly every major metro area, according to Zillow analysis. Today’s million dollar homes tend to have fewer bathrooms and are generally older, report notes.
The biggest declines in home sizes at this price point occurred in Phoenix, where they fell about 1,116 square feet, and in Nashville, Tennessee, where they saw a drop of 1,019 square feet.
Only two metro areas have seen their floor plans increase in size for homes over $1 million during this period. This includes Minneapolis, with an increase of about 36 square feet, or about the size of a closet, and Saint-Louis, about 406 square feet, or about a room and a half.
Potential buyers looking for homes worth around $1 million might get the most bang for their buck in Hartford, Connecticut, where the price per square foot is $205, according to Zillow.
That was followed by other midtown cities, including Indianapolis, with $209 per square foot; Oklahoma City, at $214; Kansas City, Mo., $221; and Cincinnati, $222.
The highest price per square foot in all major metro areas tracked by Zillow was San Jose, at around $715. A typical single-value home in this city cost more than $1.5 million in July.
Zillow defines $1 million homes as single-family homes that sell for between $950,000 and $1.05 million, while homes over $1 million sold for $1 million or more. Data exclude condominiums.
How the Cooling Market Can Affect Shrinkage
The recent boom in the real estate market has led to 72% of recent buyers regret their purchases, according to a recent survey by Smart real estate found. Spending too much money was the most common reason for buyer’s remorse, with 30% of respondents.
However, as the market cools, there are signs that prices are falling, with 1 in 5 sellers lowering their asking prices in August, according to Realtor.com. This can give buyers more opportunities to shop around and get the best value — and square footage — for their money.
“Surround yourself with experts who genuinely care about your goals and dreams and also know the area,” Danetha Doe, an economist at Clever Real Estate, told CNBC recently.