In Chicago, as families get larger, their homes aren’t growing with them. They’re forced to stay small, rather than upgrade to more spacious properties.

These households lie at the intersection of a struggling real estate market, where it’s tough to sell and even more difficult to secure the financing to buy, and a slowing economy, marked by tightened spending and rising unemployment.

One family living on the Northwest Side is expecting their second child, but they’re still living in the modest house the couple bought as newlyweds a few years ago. They paid less than 5 percent down for the house, their first, and now their real estate agent is telling them they can’t afford to sell it and buy another.

“We can’t sell the house at a profit; they can’t make the move,” said Dean Moss, the family’s agent at Keller Williams Fox & Associates Realtors LLC in Lincoln Square. “In Chicago, sellers that in any other year would be just fine are struggling.”

In today’s “buyers’ market,” moving—most of the time—means getting less for an old home and paying less for a new one. Those with enough equity in their homes, like Baby Boomers with “empty nests,” can afford to take a hit to downsize to small, snazzy condos. Families still living in their first homes are more financially strapped and often unable to move.

“They’re used to that market where you would buy, build equity, sell, make money, buy another house, build equity, sell…,” but times have changed, Moss said. The credit crisis has disrupted homeowners’ traditional turnover pattern.

According to the National Association of Realtors, the average seller has lived in his home for 6 years, but that number may be on the rise, as Chicago properties spend more and more days on the market—185 on average, one of the highest among U.S. cities surveyed by real estate tracking firm Alto Research Corp.—with fewer showings.

Harry Perl, broker-owner of Goldberg & Perl Inc. in Lincoln Park, considers the current market a Catch-22: “If you have a three-bedroom and you’re looking for a four-bedroom, the problem is you have to find a buyer to buy yours,” he said.

He estimated that 90 percent of area homes don’t even have any interested buyers, which leaves families waiting in their small spaces.

“They’re riding it out; they’re just hanging in there,” he said.

And eventually, more and more realize they may just have to stay put—a tough reality for families who haven’t dealt with such economic struggles before. This month, consumer confidence fell to a record-low, according to a report released Tuesday by the Conference Board, a national research group.

Pamela Horan-Bussey is a clinical social worker at the Family Institute at Northwestern University. Her patients, families from the North Side and northern suburbs, feel the pressure of the down market, and their inability to sell their homes can lead to familial tension.

The coordinator of the Family Institute's community program in Chicago, Horan-Bussey described a family who wanted to move into a larger home as their kids grew older, but couldn’t afford to do so as the housing market slumped and their father felt increasingly insecure about his job.

“One of the things that made it harder was that they saw it as a weakness instead of uniting them,” she said. “They were not used to going through hard times. They began to blame members of the family.”

When families have to stay in their small homes, she recommends they think constructively and creatively about the situation.

Genevieve Ferraro, of Evanston, has spent the last two years sharing her perspective on the upside of downsized homes through her Web site and blog, The Jewel Box Home.

Before she began The Jewel Box Home in 2007, Ferraro’s family of four chose to stay in their 1,800-square-foot home, despite her “big house envy.” Initially frustrated with their decision, Ferraro now couldn’t be happier to stay small, especially after her husband lost his job at a local health care real estate company last year.

“Thank God we did not move,” Ferraro said. “This would have been a crisis.”

Ferraro received a record number of emails last month from hundreds of site visitors who are trying to make the most of their small spaces.

“People who downsize or stay small, they have to. They can’t afford it,” she said. “It’s hard psychologically for people. It can be very, very embarrassing for them.”

But Ferraro, an educational publisher by day and a design consultant in her spare time, reminds moms the benefits of small spaces: how sharing rooms can make kids closer, how smaller properties conserve utilities and how basic styling can make small homes feel even more fabulous than mansions.

Unable to move, some families are turning to remodeling companies for home improvements.

Despite slow business across the construction industry, “we are definitely remodeling existing homes, and recently we’ve had a few requests for additions,” said Igor Jokanovic, president of Areté Renovators Inc. in Uptown.

Renovators may also convert extra rooms, like garages, offices and basements, into bedrooms for families who need more living space.

“I’m working on a project now where I’m converting the basement into two bedrooms and a bath,” said Ariel Darmoni, production manager for Albany Park-based 123Remodeling Inc., which works mostly on the North Side. “The industry is doing pretty bad, but our company is doing pretty good. A lot of our business is referrals.”