Real Estate

Million-dollar homes losing luxury status as buyers get less space for their money, research finds

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A for-sale sign in front of a home listed for more than $1 million on April 29, 2022 in San Francisco.
Justin Sullivan | Getty Images

Grocery shoppers aren’t the only ones who have to contend with the phenomenon known as “shrinkflation,” which is what happens when the price of something stays the same or gets higher even as the item gets smaller.

Home buyers have to worry about “shrinkflation,” too. The trend is hitting homes, particularly those in the $1 million range, where the size of the homes that buyers are getting for their money is shrinking, according to new research from real estate website Zillow.

It’s one way inflation is hitting the housing market, according to Skylar Olsen, chief economist at Zillow.

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Money will not go as far for homes at any price point, she said. But the $1 million threshold is particularly eye-catching because of the expectations buyers typically place upon it.

“A million dollars isn’t as luxurious as it once was,” Olsen said.

The idea that $1 million is only enough to buy a typical home has been around for awhile in California. Now more and more markets are also experiencing that same sentiment, Olsen said.

More than twice as many $1 million-plus homes were sold this spring compared to two years ago, according to Zillow. The biggest increases happened in Austin, Texas; Portland, Oregon; and Riverside, California.

Yet $1 million homes are getting smaller, according to Zillow listings floor plan data. Those homes peaked at 3,021 square feet in mid-2020 and were down to 2,530 early this year.

However, home size at that price level has now risen to 2,624 square feet, which is still 397 square feet less than from the 2020 high.

Smaller million-dollar homes have fewer bathrooms

Since 2019, the typical home selling for around $1 million has shrunk in nearly every major metropolitan area, Zillow’s analysis found. Today’s $1 million homes tend to have fewer bathrooms and are generally older, the report notes.

The largest declines in size of homes at this price point happened in Phoenix, where they fell about 1,116 square feet, and Nashville, Tennessee, where they saw a 1,019-square-foot decline.

Just two metropolitan areas saw the size of their floor plans increase for $1 million-plus homes in that time. That includes Minneapolis, with an increase of about 36 square feet, or about the size of a closet, and St. Louis, by about 406 square feet, or approximately a room and a half.

Prospective home buyers looking in the $1 million range may get the most for their money in Hartford, Connecticut, where the price per square foot is $205, according to Zillow.

That was followed by other cities in the middle of the country including Indianapolis, with $209 per square foot; Oklahoma City, at $214; Kansas City, Missouri, $221; and Cincinnati, $222.

The highest price per square foot in all the major metropolitan areas tracked by Zillow was San Jose, with about $715. A typical single value home in that city cost more than $1.5 million as of July.

Zillow defines $1 million homes as single-family dwellings that sold between $950,000 and $1.05 million, while $1 million plus homes sold for $1 million or more. The data excludes condominiums.

How the cooling market may affect shrinkflation

The recent hot real estate market has led to 72% of recent homebuyers having regrets about their home purchases, a recent survey from Clever 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 prices are coming down, with 1 in 5 sellers dropping their asking prices in August, according to Realtor.com. That may give buyers more opportunity to shop around and get the most value — and square footage — for their money.

“Surround yourself with experts who actually care about your goals and your dreams and also are knowledgeable of the local area,” Danetha Doe, economist at Clever Real Estate, recently told CNBC.

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