BREAKING NEWS
September 12, 2007
Size of Homes Starts Shrinking As Builders Battle Housig Slump
The MCmansion may be shrinking. With the nation's housing market in a slump and the mortgage market in disarray, many home builders are putting up fewer supersize homes and offering smaller floor plans. That seems to be what buyers suddenly want in an era of high prices and tougher financing.

"Financing has tightened down so much that many people aren't able to qualify for the larger houses," said Kathryn Boyce, an account executive in Northern California for Boston-based real-estate research firm Hanley Wood Market Intelligence. "Floor plans are going to get smaller."

Home sales have plunged over the past year, leaving builders saddled with excess inventory, especially of larger, more expensive homes. In July, new-home sales were running at a seasonally adjusted annual rate of 870,000 units, down sharply from 1.3 million in 2005.

Over the past three decades, prosperity and a demand for space to accommodate home theaters, offices, gyms and palatial kitchens has pushed up the average size of newly constructed single-family homes by nearly 45% even as the size of the average family has declined. Last year, according to the Census Bureau, the median size of a newly completed single-family home reached 2,248 square feet, up from 1,560 square feet in 1974.

The expansion continued into the first quarter of this year, with the median home size inching up to a near-record 2,302 square feet. But it slipped to 2,241 square feet in the second quarter, and many analysts think a broader decline may be in the offing.

In some cases, home builders are making the shift to smaller, less costly homes in existing subdivisions, angering homeowners who bought large homes during an earlier stage of the project's development.

But while home builders are aware that customers increasingly want smaller, cheaper homes -- and in some cases can't afford anything else -- building those homes eats into their profits, often because of the high price they paid for the land the homes are built on. That leaves them having to hope for higher sales volume to offset their reduced margins.

Some welcome the downsizing trend, including author Sarah Susanka. Since 1997 Ms. Susanka has written several best-selling books extolling the virtues of "The Not-So-Big House," and she says she has recently been attracting more interest from home builders. "I used to be asked all the time why would anybody want to downsize? People thought I was crazy," she said. "Now it's becoming much more mainstream."
The Wall Street Journal