New home shoppers will see smaller home offerings until the housing affordability issue eases in the Tri-Cities. It’s one way builders are coping with the economic realities of the affordability crunch. It’s also a classic example of economy-induced shrinkflation. July’s sales are a continuation of the trend at the local level.

Before getting into the data, it’s important to emphasize this use of the term doesn’t imply anything negative. Economic shrinkflation is a margins strategy to keep affordability in check while maintaining sales. It has taken a darker place in public attention by businesses that reduce the size of their product while keeping the same – or a raising – prices.

That’s not what’s happening in the housing market. July’s new construction sales are an example of the economic reality in practice.

New construction sales are up 25.9% from last year while the median square footage is down 9.6%. The median sales price was down 33%.

Those who pay attention to earnings calls saw this coming during D.R. Horton’s January earnings call. It was one publicly traded builder that told investors it expected “continued gradual moves down from a mix shift perspective in terms of average square footage.”

The median new home size has been ratcheted back in response to pricing pressure.

Nationwide, it follows 40 years of increasing home sizes. What’s new is builders are now going small — building homes that are similar to what was common in the very early postwar suburbs.

Builders are responding to more than price; “the move to smaller houses is a result of demographics: more single households, fewer children and families having children later in life. Lack of buildable land is also a factor — builders have been pushed to sites previously considered undesirable for single-family [homes] where more lenient restrictions allow them to experiment with products that are more affordable and more responsive to the needs of a broader array of consumers,” Scott Davis told ResiClub during an interview. Davis is president at real estate consulting firm Location Strategy.

The median square footage cost of a new construction home sale to buyers in the local market last month was $136 a finished square foot. Last year it was $182 a square foot.

There were 68 sales at a median sales price of $245,135 compared to 54 sales with a median price of $361,465 last year.