👋👋 Good morning real estate watchers! Today, we will discuss how cities like Seattle increasingly encourage new micro-units. At this point, their housing strategy is basically “put a roof on a yoga mat and call it a condo.”

But first, here’s what we’ve been paying attention to this week…

1️⃣ House Price Hopscotch: In the Q2 2025 Home Price Expectations Survey, a panel of over 100 housing ‘experts‘ revised their national home price growth forecast downward to 2.9% in 2025 and 2.8% in 2026, compared to the robust 5.3% growth experienced in 2024. (Fannie Mae)

2️⃣ Bust: China's housing demand is set to stay below 5M units annually, down from 20 million in 2017, as a shrinking population, stagnant incomes, and oversupply continue to cripple its once-booming property market. (CNBC)

3️⃣ Today, In ‘Mortgage Madness’: Commercial and multifamily mortgage debt rose to $4.81T in Q1 2025, with a modest $46.8B (1.0%) increase driven primarily by CMBS, CDO, and ABS issues, while commercial banks remain the largest mortgage holders at 38% ($1.8T). (MBA)

4️⃣ Vibecession: Despite stable economic data, rising inflation fears and global uncertainty have split U.S. households, with many feeling financially anxious even as most remain hopeful about the future. (HW) (Briefcase)

5️⃣ Summer Price Freeze: U.S. home prices dipped 0.1% in May, just the fourth monthly decline in a decade, as annual growth slowed to 3.6%, with 32 of the 50 largest metros posting price drops. (Redfin)

TOP STORY

At just 221 square feet, Paul moved into his Seattle micro-apartment with a bed, a bike, and the optimism of a man who hadn’t yet stubbed his toe on the refrigerator for the third time that day. “It’s small,” he laughed, “but so is my mortgage.” And therein lies the heart of America’s newest—and tiniest—housing trend.

Across the country, homes are shrinking faster than a Gen Z attention span, and surprisingly, that’s not a sign of market distress. It’s a deliberate response to shifting preferences, affordability crunches, and the rise of what some are calling the “anti-McMansion” era.

According to StorageCafe, 2.4% of all new apartments in 2024 qualified as “micro-apartments” (441 square feet or less), up from 1.8% in 2018.

In Seattle, micro-apartments are not just popular, they dominate. Two-thirds of the city’s new housing pipeline consists of micro-apartments. Boston is close behind at 56%, with Newark, New Jersey, not far off at 50%.

This isn’t just a coastal quirk. Seven of the top ten cities with the highest share of micro-apartments are in the West, driven by density, policy reforms, and necessity. Even famously space-hungry San Francisco is in on the trend, with nearly a third of its new construction under 441 square feet, and 14% of its entire apartment stock already micro-sized.

The shift isn’t just happening because developers ran out of drywall. It’s consumer-driven. A 2024 survey by IPX1031 found that 73% of Americans would consider living in a tiny home, with Millennials leading the charge.

Their top reasons for living smaller are affordability, minimalist lifestyles, and the realization that maybe 3,000 square feet of carpet to vacuum isn’t all it’s cracked up to be.

In fact, 86% of respondents said tiny homes were a good option for first-time buyers, and 82% considered them attractive investments. Over half had considered alternatives like container homes or van life, suggesting Americans aren’t just thinking smaller, they’re thinking differently.

According to the National Association of Home Builders, the median size of new homes is declining to meet this demand. In 2023, buyers only wanted about 200 square feet more than they currently had, down significantly from previous decades.

A third said they’d happily trade space for price, especially if it meant ditching the formal dining room (and maybe their in-laws).

NAR Deputy Chief Economist Jessica Lautz points to another key factor: household composition. “A third of homebuyers today are single,” she noted. “They don’t need a three-bed, two-bath house. Builders are starting to adapt to this reality”.

And let’s be honest: when was the last time anyone used a guest bedroom for a guest?

The rise of tiny homes and micro-apartments isn’t just a consumer or market response; it’s a policy story. Cities like Seattle, Boston, and New York have reformed zoning to allow smaller units in areas once limited to full-sized apartments or single-family homes.

Seattle’s 2024 zoning reforms, for instance, permit micro-apartments in all multifamily zones and are designed to support the creation of 120,000 new units over 20 years. In a city where land is scarce and affordability is a four-letter word, smaller units are proving to be an elegant solution to a very big problem.

It’s not just young professionals and TikTok minimalists hopping on the tiny trend. Nonprofits like DignityMoves are betting that smaller homes could be a big answer to homelessness. Their “interim supportive housing” model places unhoused individuals in tiny, dignified units—cabins, really—while they wait for permanent housing.

Founder Elizabeth Funk isn’t subtle about the stakes: “We’re never going to build enough permanent housing at $800,000 a pop. It’s just not practical,” she told HousingWire. Their solution? Build movable homes for about $50,000 each and find creative ways to fund them, including leveraging Trump-era tax law to offer accelerated depreciation to investors1.

And cities are buying in, literally. California’s Medicaid program, CalAIM, now reimburses for health services delivered in tiny home shelters. It’s a patchwork funding model, but it’s showing real promise.

For decades, the American Dream was sold by the square foot. But now, that dream is getting leaner. Rising interest rates, climate consciousness, and shifting lifestyles are all conspiring to make smaller homes acceptable and aspirational.

Whether it's Paul in Seattle, a newly minted homeowner with no space for clutter or regrets, or a formerly unhoused resident finding stability in a 100-square-foot cabin, one thing is clear: the future of housing may be small, but it’s mighty.