As homes and other residences get smaller and more compact, individuals are on the hunt for products—from storage and closet units to bins and baskets—to help them optimize and organize their residential space to the best of their ability.
Rising costs per square foot of homes, size-able interest rates, and changing lifestyles are all contributing to an overwhelming trend toward tighter residential spaces, with more nooks that utilize every square foot available. Organization products are also a must-have, to ensure a comfortable and convenient living situation, regardless of size, and home improvement products brands can capitalize on this demand in the coming years.
Home Organization Product Market Expanding
Demand for home organization products is on the rise. According to data from Freedonia Group, the market for home organization products is forecast to increase at a compound annual growth rate (CAGR) of 1.5% annually, reaching $15.8 billion in 2028. Although the rate of growth is slightly down from early COVID-19 pandemic rates, the projected demand for home organization products continues to be strong over the next several years.
At the top of the list are modular DIY, custom-designed and installed storage units. Other products that will be in high demand include shelving, bins, baskets, accessories and hardware. These types of home organization products can assist homeowners and renters in making the most of all the space available to them, including closets, garages, pantries, entryways, and outdoor areas. They also can increase versatility, making areas suitable for a wider variety of uses.
Looking ahead, organization and storage brands have an opportunity to provide custom solutions, products and features that are designed to meet the growing demand.
Smaller Homes Demand Better Organization Products
One of the factors lending itself to the demand for home organization products is the current landscape in the housing market across the U.S. According to the National Association of Home Builders (NAHB), in 2023, new homes reached their smallest median size in 13 years.
Research from NAHB revealed that approximately 38% of builders in the U.S. constructed smaller homes in 2023, and 26% planned to construct even smaller homes in 2024. This highlights the downward shift in buyer preferences for home size over the past 20 years, according to NAHB. For example, the typical buyer currently wants 2,067 square feet of residential space, compared to 2,260 square feet in 2003.
A few different factors are contributing toward this trend for smaller spaces, including:
1. Affordability Amid Inflation
One factor influencing the smaller-house trend is affordability, which is highly prioritized by first-time homebuyers. In general, home prices are on the rise. Data from the Federal Housing Finance Agency (FHFA) House Price Index shows that U.S. house prices rose about 5.7% between the second quarter of 2023 and the second quarter of 2024. As a result of increasing costs, large homebuilders are producing smaller homes to compensate for rising costs and to meet the demand for affordability. In the second quarter of 2024, the average square footage of newly built private residences was 2,363 sq. ft., compared to 2,405 sq. ft. in the same quarter last year, according to data from the U.S. Census Bureau. That’s compared to 2,540 sq. ft. in the second quarter of 2021. As individuals and families struggle to get into the housing market, investing in a smaller home is one way they have the opportunity to qualify for a home amidst higher home values.
2. Facing High Interest Rates
Additionally, the market demand for smaller homes is due in part to interest rates—which impact both builders and buyers. The average 30-year fixed mortgage rate in the U.S. is still above 6% as of September 2024. In general, rates spiked dramatically, to a 20-year high, in 2022 and 2023. While there’s been a little relief now since the September 18th Federal Reserve 50-basis point cut, it’s still slow going.
While Fannie Mae predicts rates will continue to drop—reaching about 6% in 2025—we’re not likely to go back to 2020 and 2021 numbers, and these lingering high mortgage rates will impact the housing market. Homebuyers will continue to be conservative and cautious, likely extending the trend for smaller homes as home builders adapt to their needs and construct new homes accordingly.
3. Changes in Household Size
Additionally, we’ve seen notable changes in household size over the past several years. According to data from the U.S. Census Bureau, the average number of people per household dropped dramatically in the 1970s and 1980s and continues on a steady downward trend. In 2023, the average was about 2.5 for all households and hovering between 3.0 and 3.5 for family households. Plus, individuals are choosing to have kids later in life, which means first-time homebuyers typically don’t require the same amount of space. Families are able to live comfortably with a smaller home compared to years past. It's also possible that families will start to stay in smaller homes for longer than historically seen.
4. Lifestyles and Spaces are Evolving
Finally, there have been lifestyle changes over the past few years that influence how people view and use their residential space. The response to covid highlighted the importance of indoor-outdoor living, with many people investing in their yards, gardens, and other outdoor spaces during that time period. Also, while remote work isn’t as prevalent as it was during the height of the pandemic, there is a lingering change in the professional landscape across multiple industries. Many people have adjusted to a hybrid situation, working partially in the office and partially at home. With residential spaces expected to serve a wide variety of purposes, individuals are seeking home improvement products and features to help them keep their home or apartment organized and functioning smoothly—despite the decrease in square footage. That includes modular organization units, drop-leaf tables, kitchen islands that include drawers and cupboards, vertical closet organizers, mobile storage carts, basket-style shelving, and frameless cabinets, to name a few.
Lifestyles are also spreading to newer spaces for storage and organization. Garage storage systems has been on the rise for several years along with intentional spaces dedicated to hobbies or entertainment - she-sheds, art studios, and how about Ken's Mojo Dojo. With many homeowners choosing to remain in and invest in their home, look for these growing applications to be an opportunity with larger home improvement projects expected over the next few years.
Meeting Demand for Home Organization Products
As a home improvement product manufacturer or retailer, it is important that you understand the underlying causes and factors contributing to demand for specific product categories, so you can plan, strategize, and market accordingly. That's where we can help. The Farnsworth Group provides specialized Customer Usage, Attitude and Behavior market research services to help you dig deeper into your target audience and determine what products to develop and promote, which distribution channels to release them through, and how to market them.
