Business

Homebuilders say 'less is more'

LOS ANGELES — When the U.S. housing market hit the skids, homebuilders like KB Home that thrived by offering large homes and expensive amenities began to rethink their home designs with an eye toward making smaller, less costly homes.

Three years into the downturn, that trend appears to be intensifying, as many builders scramble to make their wares affordable to first-time buyers and compete with a trove of older homes and deeply discounted foreclosed homes on the market.

Los Angeles-based KB, which builds homes to order, began downsizing some of its floor plans last year.

"That worked for a time, but the market continued to move away from us," CEO Jeffrey Mezger said.

The company initially pared down 3,400-square-foot homes selling for $450,000 to smaller, 2,400-square-foot homes selling for $300,000.

Now, the builder is shrinking floor plans again. It recently launched a new line of homes in foreclosure-ravaged Southern California that start at 1,230 square feet and a little over $200,000.

Other builders, including Warmington Homes and John Laing Homes, have taken similar steps, as the industry seeks to stem losses due to falling home prices, tighter mortgage lending standards and skittish buyers. New home sales fell in August to the slowest pace in 17 years, while the median sale price fell 5.5 percent to $221,900.

The trend in smaller homes is a reversal of more than two decades of expanding floor plans, during which median size single-family house went from less than 1,600 square feet to more than 2,200 square feet.

That drive peaked during the housing boom. Derided by some as McMansions, these super-sized homes packed with amenities helped drive up home prices even more.

Beyond competing with older homes on the market, declining home prices have also made it less profitable to build large homes, said Nishu Sood, a Deutsche Bank analyst.

"The only way to respond to the lower price environment ... is to make the home smaller," Sood said. "As you kind of reduce the floor plan size, we're getting back to more the way things were historically, kind of undoing the excesses, not just from a price perspective but home size" and fewer amenities.

Homebuyers' tastes, possibly influenced by tighter mortgage lending, are also helping drive the changing trends in new homes.

Big formal entries, high ceilings and lavish light fixtures are also not as high a priority among many buyers these days, said Linda Mamet, vice president of sales and marketing for Irvine, Calif.-based John Laing Homes.

Morris said fewer buyers are opting to upgrade from a standard laminate kitchen countertop to a granite countertop. "With move-up buyers, for a long time everybody wanted the biggest house on the biggest lot with the best view and all of the options," Morris said. "What we're doing is we're building homes today that have a lot fewer options."

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