Playing it small

In this economy, an affordable house with efficient use of space can steal the spotlight

December 14, 2008|By Andrea F. Siegel | Andrea F. Siegel,

A mini-trend is in the making.

Fueled by demand, affordability and demographics, smaller homes - especially energy-efficient and well-designed ones - are emerging as welcome alternatives to McMansions.

A substantial group of buyers is seeking less: less house, a lower mortgage payment and price, a smaller utility bill. It also wants more: more flexible use of space, greater energy efficiencies, more functionality.

"It is the core trend of the future. People have more economic viability with their homes going forward," said Richard Thometz, principal of Hailey Development and a home energy services company in Burtonsville.

He said it is akin to the development of a mass market for smaller cars with higher gas mileage and lower price tags.

The trend is expected to continue, as many builders, experiencing their worst slump in a generation, downsize their offerings to meet a market reality of housing and economic woes.

Some builders have revamped their plans to feature smaller homes, aiming to keep buyers within range of government-backed mortgages that have lower interest rates. Other builders are expanding offerings of smaller, lower-priced homes; some note their less-square-footage products are their most popular.

"We are finding that price is the indicator of interest at this point. In order to do that, we are looking to smaller homes," said Mary Anne Kowalewski, vice president of sales and marketing for the Maryland North division of New Jersey-based K. Hovnanian Homes. "What we did was change our offerings."

That move takes at least 1,000 square feet off house size and $100,000 or more from the price. Those changes reduce base models, for example, in an Annapolis community to 2,400 to 3,000 square feet in the $500,000s from those starting at 4,000 square feet in the $600,000s.

Ryland Homes, the second-largest Baltimore-area home builder, lopped 600 square feet off its smallest base model in a White Marsh-Perry Hall community, cutting it down to 1,800 square feet.

The house has three bedrooms, not four, and room sizes have been trimmed along with $30,000 from the price, said Earl Robinson, vice president for sales and marketing for the Baltimore-Delaware areas.

"This has become our most popular product we are doing - a more affordable home in an upper-end community," Robinson said.

Although the house may be less roomy and less expensive, luxuries such as upgraded cabinetry and counter surfaces remain. A 2007 survey by the National Association of Home Builders showed this shift: Three of five potential buyers would prefer a smaller residence with more amenities to a bigger one with fewer amenities.

In Smyrna, Del., Pulte designed homes starting at about 2,400 square feet, down from 3,000 or more square feet, said Lou Baker, who heads Pulte's MidAtlantic division. Some rooms are a little smaller, and "there is no two-story family room," he said.

The houses start at around $250,000.

"Now you feel like you are building a house you can sell," Baker said.

That is a very real concern for an ailing industry. Nationally, new home starts fell in October to their lowest level in more than a generation.

"There was a segment of the market that was in the market for a smaller home," said Cynthia Herberg, marketing director for Bethesda-based Winchester Homes.

How much smaller? That's relative. It may mean 2 1/2 bathrooms instead of 3 1/2 , or no first-floor office, or a less grand master bedroom suite, or a return to flexible rooms that do double-duty, or losing a formal living or dining room.

It may mean 1,800 to 2,400 square feet - hardly the size of Jeannie's bottle, but scaled back from the larger residences of the housing boom and a little smaller than the current national average.

"We're down around 2,700 square feet," Michael DeStefano, president of Sturbridge Homes, said of one group of his Anne Arundel County houses.

That's from about 3,500 square feet and priced in the mid $500,000s. But the larger houses are about $100,000 more. Several houses he envisioned at 4,000 to 5,000 square feet probably will be smaller, too.

Experts say it's no surprise, given the walloping homeowners have taken recently in rising energy bills, increased transportation costs and shriveling investment portfolios, topped by a sour economy and job loss.

"Can you afford a big mortgage, to pay big utility bills and more taxes on that house?" asked economist Anirban Basu, chairman of the Sage Policy Group in Baltimore.

The disappearance of exotic loan arrangements and re-emergence of traditional fixed-rate loans requiring down-payments reduces housing affordability, said Basu; if people want to buy, they have to buy what they can afford. For builders, bigger isn't better if it isn't selling.

"People will either happily or unhappily live in smaller homes," he said.

For some people, condensed space closer to the urban core is an environmental commitment to reduce one's eco-footprint. But for most, it's all about the money, he said.

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