Spending on residential construction was up .4% in September, according to new data out Wednesday morning from the Commerce Department..

While the cost per square foot of a new home is rising, the average size of those homes is shrinking as builders try to make the math work out for buyers. Higher building costs and interest rates make this a tough market with many potential buyers priced out. 

Early in the pandemic, some of our houses started to feel a little cramped. 

“People found themselves working from home, spending more time at home,” said Rose Quint with the National Association of Home Builders.

Buyers were looking for home offices, space to work out in, and “of course, very low interest rates allowed them to buy those bigger homes,” she added.

“But now we’ve seen a force more powerful than work from home, which is affordability,” noted Ali Wolf with the housing data firm Zonda.

Higher mortgage rates are driving demand for smaller homes; the average size of a new build is down 10% since 2018.

And while today’s buyers may wish they could afford that extra bedroom or a bigger kitchen, “having builders pivot toward more affordable homes by offering a smaller square footage can be really good,” said Wolf.  

It helps ensure there’s affordable inventory in the long run, she said.