Big houses cost more than small ones, so they must be worth more and therefore are better investments. Correct?

Not exactly.

A Seattle Times analysis of King County home sales shows the opposite is true. Judged not on sales price, but on cost per square foot - which reveals how much buyers actually get for their money - little houses outperform their bigger brethren not by a little, but by a lot.

Indeed in the past decade, homes 2,500 square feet or larger have appreciated 57 percent. In 2000 that put the square-foot price at $147.

But those under 1,200 square feet - in other words, your basic two-bedroom, one-bath starter house - have appreciated a remarkable 78 percent, to $184 a square foot last year.

In an era where "bigger" and "more" seem to be the bywords, it's truly the revenge of the small house, and it doesn't surprise Anthony Gibbons.

A real-estate consultant and appraiser, Gibbons explains that smaller houses may be more expensive per square foot, but they're still cheaper than bigger models. As a result, "far more people can afford that type of a home, so there's real price pressure on the smaller home. It will tend to rise faster for that reason."

Michael Smith, president of Prudential Michael Smith Realtors, agrees. "I think it's a dynamic based on supply and demand," he says, citing a recent example he witnessed.

A young couple was considering two houses. One, in Bellevue's Vuemont neighborhood, was 3,000 square feet and $375,000. Just 12 years old, it had four bedrooms and "was very amenity laden," Smith says.

The second house, 1,800 square feet on a considerably smaller lot, was 50 years old and needed a full update. But it was in more-sought-after Madison Park, the Seattle neighborhood that posts King County's highest per-square-foot housing costs. And thus its $425,000 price tag was almost a bargain.

The couple took it.

Using a decade of home-sales data from the King County Assessor's Office, The Seattle Times compared median per-square-foot prices for homes under 1,200 square feet with those over 2,500 square feet. Each segment comprised about 20 percent of the home-sales market. The findings:

• In 1990, there was less than a $10 a square-foot difference between big and small. By last year the gap had grown to $37 a square foot.

• When the economy stalled in 1990 so did the square-foot price of big houses. In fact it was either dropping or flat until 1994.

• No such scenario for small houses. They appreciated virtually every year and really rocketed up in the late 1990s, appreciating $47 a square foot in the last four years alone.

• This phenomenon isn't limited to in-city Seattle or Bellevue locations where plentiful jobs can create intense housing demand. Indeed, when The Times examined sales in numerous locations, including Auburn, Shoreline, West Seattle and Issaquah, small houses last year always cost more per square foot than bigger ones.

• With few exceptions this has been true every year for the last decade. For example, in Issaquah, a city with a mix of both small old homes and new large ones, the small houses have been the priciest right back to 1990. Last year buyers paid $208 per square foot for the little ones, and $175 for larger ones.

Only when Issaquah homes reached 3,500-plus square feet, and $206 a square foot, did the gap between the two narrow. (Because few communities have sufficient annual sales of these very large homes, it can't be said if this is a county-wide trend.)

• Generally the price per foot drops incrementally as houses get larger. Last year in Central Shoreline for example, homes 1,200 or less sold for a median $176 per square foot. Between 1,200 and 1,500 the price was $145. Between 1,500 and 2,000: $132. Between 2,000 and 2,500: $121. Over 2,500 square feet: $97. That's a $79 difference between biggest and smallest.

It's not bleak for big houses

Does all this mean big houses are bad buys?

Not at all. That's because big-house appreciation builds from a larger base. Here's an example. A 1,100-square-foot house, purchased at the median price per square foot, would have cost $113,800 in 1990 and $202,800 last year. That's 78 percent appreciation, or in real dollars $89,000.

A 2,600-square-foot house bought for the median square-foot price would have commanded $243,700 in 1990 and $382,600 last year. That's a 57 percent increase. However dollar-wise it's $139,000, $50,000 more profit than that of the smaller house.

No shortage of theories

Whether King County is unique in this valuation trend is hard to say. Neither the National Association of Realtors nor the Washington Center for Real Estate Research (at Washington State University) knows of any national analysis of home cost per square foot.

But local real-estate experts have their theories.

Prudential's Smith chalks a lot of it up to neighborhood appeal. Indeed the top 10 priciest areas per square foot are all in Seattle, save Bellevue/Medina, and most are located north of the Lake Washington Ship Canal in areas Smith says have long been considered, "safe and secure, with a small-town feel.

"Buyers are willing to pay a premium to reside in a particular neighborhood - versus going a few blocks to another neighborhood where they can get so much more."

Glenn Crellin, director of the Washington Center for Real Estate Research, thinks land costs play a key role.

"When you attribute all the value to the size of the structure, you're creating a bit of a distortion," he argues.

"We know that what's really been driving this appreciation is the value of the land, not as much the value of the structure on that land."

Indeed, homebuilders have said for years that state-mandated growth management has created a scarcity of affordable King County lots.

As a result, new 1,200-square-foot starter homes aren't being built because land is too expensive to justify them. Instead what's being built for the entry-level market are 1,200 square-foot (or smaller) starter condos.

But large new houses are still being built, which means the demand for them is easier met, and they're growing ever larger. According to the National Association of Home Builders, 30 years ago the average new home was 1,500 square feet. Now it's 2,265.

At the same time the demand for affordable housing has done nothing but increase locally. That's because even though median household incomes have reached an all-time high - $63,000 according to the most recent state estimate - so have housing costs.

Last month the median price of a King County single-family house was $334,263, according to the Northwest Multiple Listing Service (NWMLS). Generally speaking, buyers would have to have an income of $110,000 to afford it, according to industry standards.

"Smaller homes are more affordable, therefore they're always going to be getting price pressure," notes Gibbons, the appraiser. "You're going to have to find a smaller and smaller home in a rising market. So a $150,000 home today is a heck of a lot smaller than it was five years ago."

Ownership still highly valued

Even if a house may be older and smaller than the apartment the new owners left, ownership is still an excellent move, Gibbons counsels. He provides this example:

Ten years ago "Jane" bought a $100,000 small house. She put 25 percent down, and got a 30-year, $75,000 mortgage at 9 percent. Her house then appreciates 78 percent in a decade - right on target for small King County houses - and is now worth $178,000.

The $25,000 Jane put down has grown to $111,360, so her rate of return is 16 percent a year. Even more impressive her equity has increased 345 percent over 10 years.

"A home is the one place where capital accrues relatively rapidly, and you have the tax savings on the mortgage," Gibbons says. "And it's the one thing you can borrow against. It's a lot cheaper than a credit card."

Given all this, should purchasers still follow the old advice to buy the most house they can afford? Gibbons thinks not.

Instead his advice is "buy the most neighborhood you can afford. Buy the best lot you can afford. Worry less about the home. You can make a house a home, but you can't control the neighborhood or the size of the lot."

Elizabeth Rhodes can be reached at 206-464-2306, or by e-mail at erhodes@seattletimes.com.