Builders Shrink Homes as Prices of Foreclosed New Homes Fall

About 90 percent of home builders surveyed by the National Association of Home Builders are now building smaller homes to be able to compete with the bargain prices of foreclosed new homes.

The NAHB said that the size of the typical single-family house has shrunk last year by 11 percent compared to the typical size in 2007, when families preferred bigger and bigger homes despite getting smaller and smaller in number of members. In 2007, the typical family house measured 2,500 square feet, a big increase from the 1,660-square-foot average in 1973.

Steve Davis, chief operating officer of Arizona-based builder Meritage Homes Corp., said his firm has built houses in the 4,500-square-foot range. But last year, his firm decided to limit sizes to only 2,800 square feet.

Builders said they have to build homes that can compete with cheaper foreclosed new homes. About 50 percent of total home sales have been foreclosed new homes sold at discounted prices.

Eric Landry, a real estate analyst for Morningstar, said builders need to survive so they have to find ways to offer products that can compete with foreclosed new homes.

Nevertheless, Meritage said it is shrinking its houses but not reducing the number of its bedrooms. Its new model combines living rooms and dining rooms, minimizes hallways and uses other techniques to reduce square footage.

In Yuma, where there are large numbers of foreclosed new homes, builders observed that only cheaper houses were being bought. The Development Group initially planned to build houses measuring 2,500 square feet, but after the sales of new homes declined, it now plans to build houses sized only up to 1,700 square feet at its Terraces development.

The builder also reduced its prices from the $287,000 to $350,000 range to a low of $200,000. It has also launched the development of smaller neighborhoods, with houses measuring only 1,100 square feet.

Sales director Bobbie Cooper said lifestyles are changing because of the recession.

People are also becoming increasingly conscious about energy consumption and maintenance costs. Empty nesters are also looking to downsize because they want to focus on enjoying their lives rather than maintaining properties.

In Columbia, South Carolina, housing developer Great Southern Homes has launched a house model called Bungalow, a three-bedroom 884-square-foot home that sells for only $89,000.

Maureen Swindall, vice president of Great Southern, said prospective home buyers are glad they can afford to buy a single-family house. During these difficult times, prospective home buyers are looking for lower-priced houses, either newly-built homes or foreclosed new homes.

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