Homes are shrinking with the times
The Terraces subdivision here contains rows of 2,000-plus-square-foot homes appointed with sunken tubs, granite countertops and tile floors that stare off into open desert.
But as the economy has contracted, so have the homes.
The development will soon be dotted with new 1,700-square-foot houses on narrower lots that retail for more than $100,000 less than their predecessors.
Though the square footage of new houses tends to dip modestly in recessions, the size of the American home has essentially increased since 1973. But that changed last year, when the size of the typical house suddenly shrunk by 11%. That appears to be faster than at any time since the 1970s.
“People are realizing, ‘Hey, I don’t need the Lexus anymore,’ ” said Wayne Eide of the Development Group, builder of the Terraces. “ ‘I can live with the Camry.’ ”
The National Assn. of Home Builders recently surveyed its members and found 90% of them are building smaller now. Developers cite many factors: increased energy consciousness, empty-nest baby boomers looking to downsize. But the strongest motivator is clearly the sagging economy.
About half of all homes sales are now foreclosures that retail at a big discount. Home builders, hemorrhaging money, are trying to compete by building smaller, less-expensive models.
“A lot of the movement of home builders to smaller homes is because there’s no choice,” said Eric Landry, an analyst who follows builders for Morningstar. “For people who build homes, it is the Great Depression. They’re basically in survival mode, so they do what they have to do.”
Skeptics question whether the shrinkage is just a brief reaction to a down economy, and, indeed, home sizes began to creep back up in the first quarter of this year. But they remain well below their peak, and the drop was so sharp and so sudden that some analysts wonder whether the nation could have reached a tipping point.
“Bigger has been better for a long time,” said Stephen Melman, an economist with the home builders group. “Maybe this will be a significant change in direction.”
Even as the typical American family has gotten smaller, the average size of a finished home has risen to more than 2,500 square feet in 2007, from 1,660 square feet in 1973.
A typical single-family home under construction -- the most forward-looking statistic -- peaked at 2,629 square feet during the second quarter of last year, according to the Census Bureau. By the fourth quarter, it had dropped to 2,343. It rose to 2,419 in the first three months of this year, data released last week show.
It’s hard to measure the plunge against those in previous downturns because data on the size of homes under construction aren’t available going back to the 1970s. But a comparison of the available figures with other census categories, such as the slightly less-timely “square footage of homes sold,” show that the drop is the sharpest since 1978.
The shrinking of the American home coincided with a tightening in lending standards, which reduced the amount of money left for the few remaining home buyers. Builders scrambled to shrink their product accordingly.
Before the bust, Scottsdale, Ariz.-based Meritage Homes Corp. had built houses as large as 4,500 square feet. Starting in the second quarter of last year, the firm stopped constructing anything more than 2,800 square feet, said Chief Operating Officer Steve Davis.
“We’ve scaled back to the late-'90s” sizes, said Davis, whose company builds homes in Arizona and in California’s Inland Empire, along the Interstate 15 corridor.
Like other builders, Meritage tries to shrink houses without sacrificing the number of bedrooms. Its smaller models combine dining rooms and living rooms, minimize hallways and rely on other design techniques to limit square footage.
Davis said that the days of the 5,000-square-foot home might be over but that he wouldn’t be surprised if buyers craved larger houses again.
Westwood-based KB Home this spring introduced a line of customized, smaller houses in Southern California and other markets. It was called the Open Series, which analysts credit for the company’s 26% rise in ordered homes. “Homes must change with the times,” Chief Executive Jeffrey Mezger said in an earnings call with investors in March.
In Yuma, a fast-growing Arizona city where the real estate bust has hit hard, developers saw that only cheaper properties were selling. The Development Group, which had planned to erect 2,500-square-foot homes at the Terraces, first slimmed them down to about 2,000 square feet. Now it’s planning houses of 1,700 square feet.
The price dropped too, to just below $200,000, from a range of $287,000 to about $350,000.
The company also began building neighborhoods of even smaller, and cheaper, houses -- as small as 1,100 square feet, with carpeted rather than tile floors and laminate countertops instead of granite.
“Families and lifestyles are changing,” said Bobbie Cooper, director of sales. “In 2005 you couldn’t build it big enough. Now it’s all about getting back to the basics.”
Nine of the 13 smaller homes in the company’s Araby Crossing subdivision, which opened in February, have sold.
Jeannie Kellogg, 45, a purchaser for the U.S. Army, bought a 1,400-square-foot, three-bedroom house there. Recently divorced, she moved from a 2,200-square-foot home into her current 1,600-square-foot one and was eager to simplify even more.
“I don’t have a lot of maintenance,” she said. “If you want to go away for the weekend, with this house it’s easy. With a big house you have to take care of things, make sure the sprinklers are on.”
Some home builders are daring to get even smaller.
In Columbia, S.C., local builder Great Southern Homes this year introduced a model called the Bungalow -- an 884-square-foot, three-bedroom house that sells for $89,000.
“A lot of the buyers are so excited about being able to afford a single-family home,” Vice President Maureen Swindall said. “Maybe it’s not as large as some of the apartments they came from, but this is their space.”
Then there are people like Greg Johnson, of Iowa City, Iowa, a proponent of the “small-house movement.” More homes are designed for environmentally minded people like Johnson, whose house covers 140 square feet.
“Technology is shrinking our lives,” he said. “I have a larger music collection than ever before,” but it’s entirely digital.
Of course, even Johnson and other idealists acknowledge that bigger can be better. In fact, he plans to trade up when his fiancee moves in with him this fall. They’re getting a 400-square-foot house.