New homes shrinking as buyers try to make their dollars stretch

By MARCELLA S. KREITER   |   April 10, 2011 at 4:00 AM   |   0 comments

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CHICAGO, April 10 (UPI) -- A funny thing happened on the way out of the recession -- new homes started shrinking.

Where consumers were eying spacious abodes of 2,500 square feet in 2007, they're now looking at 2,380 square feet and the National Association of Home Builders in Washington predicts that will shrink further, probably to an average 2,150 square feet by 2013.

"Affordability is driving all the decisions," said Stephen Melman, NAHB director of economic services. "First-time buyers are going to buy smaller, less expensive homes. And baby boomers are still buying homes. They no longer need five bedrooms and a big back yard."

But even though they're smaller, Melman said in an interview with UPI, the designs are better, giving the smaller floor plans a more open feel -- and the growing standard of 9-foot ceilings on the main floor also helps.

Custom building actually increased during the recession with buyers determined to get the most value out of the cost of the home.

"Custom home buyers are saying, 'This is how much I can spend. How can we make it fit?'" Melman said. "Architects are eliminating walls, raising ceiling heights and builders are using interesting and brighter materials."

Don't expect to see many two-story atriums in the newer designs, Melman said. Consumers and builders are showing greater concern for energy efficiency, so that dramatic entrance had to go, and while the two-story house is still the most popular design the one-story is creeping up, going from 34 percent of new homes built in 2007 to 43 percent last year.

A recent survey done for the association found the No. 1 item on consumer wish lists is a great room, followed by a walk-in closet in the master bedroom and a well-organized laundry room. Also popular is the main floor master bedroom, especially among baby boomers who are looking ahead to needing a caregiver or having the need to provide a bit of privacy for adult children returning home either from school or for economic reasons.

Surprisingly, people are also asking for smaller garages -- just two-car, not bigger, the survey indicated.

Melman said it will be some time before the industry recovers from the recession and many builders have been weathering the economy by engaging in home remodeling. Melman estimated roughly a third were forced out of business by the recession.

Currently, the unsold new home inventory is at a 40-year low but the foreclosure crisis is weighing heavily on the industry and things won't turn around until that burden is lifted.

In February, the latest month for which numbers are available, the number of foreclosures stood at 225,000, RealtyTRAC reported. That was down 27 percent from the year-ago number but experts said the number was deceptive since tens of thousands of homes are still in limbo because of the paperwork controversy that halted proceedings across the country until mortgage-holders could correct errors in their "robo-signing" practices.

The situation has led to depressed appraisals on existing properties, sometimes coming in below costs, making it difficult for builders to get construction loans. Melman said some banks have been calling in loans even if payments have been coming in on time.

"The industry hit bottom in 2009," Melman said. "But by 2012 it should be pretty close to where it was before the downturn."

John McIlwain, a senior fellow at the Urban Land Institute in Washington, told the Chicago Tribune the big master-planned community may not be dead but right now "there's no financing for land development."

Beaser Homes USA has decided to take a different approach. The Atlanta homebuilder last week introduced a pre-owned home division for a newly defined market: renters who want a new house but can't afford or don't have the credit to buy one. Beaser is experimenting with the concept in Phoenix initially, planning by the end of the year to acquire 100 homes, many of them distressed properties that will need to be improved before they can be rented out.

"I wouldn't be surprised if other builders followed in their footsteps," David Crowe, chief economist with the NAHB told HousingWire. "But it is going to be restricted to those companies that have a significant amount of capital."

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