Small home is big deal as 'McMansions' lose appeal

BALTIMORE — The first home Mette Ramanathan and her husband considered buying was a 2,200-square-foot, five-bedroom place. It was too big for the couple, who were interested in space efficiency and lower utility costs.

So they settled on a smaller three-bedroom Cape Cod in Baltimore's Hamilton neighborhood.

The larger house was "not only expensive, but you're using and wasting an awful lot of space," said Ramanathan, who moved in May. "Even if we start a family, we don't need five bedrooms to start a family."

Forget the "McMansions" of the boom years. Small is the new big.

For the first time in nearly 14 years, the median size of a new single-family home decreased, to 2,215 square feet last year from 2,277 square feet in 2007, according to the U.S. Census Bureau.

Since 1991, single-family homes consistently were getting bigger and bigger, mirroring the housing bubble and good economic conditions.

"That's reflective of the economy back then: the stock market, the egos, people trying to compete with their neighbors and people trying to keep up with the Joneses," said Cindy Ariosa, regional vice president for the Baltimore and Southern Pennsylvania region for Long & Foster. Ariosa considers anything under 3,000 square feet a smaller home.

In the past year or so, demand has shifted from large homes amid the collapse of the real-estate market.

Cash-strapped buyers want to contain mortgage and maintenance costs, including utility bills, after watching their investments and retirement plans plummet, according to real-estate agents and economists. And some buyers are mindful of energy consumption.

Simpler tastes

"When the economy is weak, unemployment is high, income gain is slower or nonexistent, people tend to focus on simpler things, less expensive things," said Kermit Baker, chief economist for the American Institute of Architects.

Another major reason is that market is being fueled by first-time buyers, who are becoming the bright spot in the housing slump. They are being lured by the $8,000 federal tax credit and falling home prices. Novice buyers typically buy smaller homes, such as a town house.

Instead of moving out of Baltimore to buy a larger house, Steve Ruckman decided he wanted to remain in his neighborhood and find a small place. The 30-year-old lawyer moved into his 1,200-square-foot row house built in the 1800s in July. The square footage includes his tiny backyard.

"I live alone, so being able to keep up a small property is more realistic," he said. "I didn't have to make purchases to fill the space."

In a survey this year, the National Association of Home Builders found nearly nine out of 10 builders are putting up smaller homes, a trend that has accelerated since May 2008. And more architects say clients want smaller homes, with 50 percent indicating square footage is declining this year, compared with 15.5 percent last year, according to a survey by the American Institute of Architects.

For instance, Ellicott City, Md.-based Grayson Homes, this year introduced smaller floor plans in its single-family communities, ranging from 2,200 square feet to 2,900 square feet.

During the boom the most popular size was 3,200 square feet, said Cindy McAuliffe, Grayson's president. The number of rooms is the same but they're smaller.

"It's the market overall," McAuliffe said. "Because of the stock market and economy and with the recession, people are pulling the reins a little bit. They're trying to keep their monthly payments a little lower, so they feel more comfortable with the mortgages on their homes."

But Patrick Costello, president of Forty West Builders in Ellicott City, which caters to second- and third-time home buyers, said there's still a demand for bigger homes even though the builder introduced a smaller, 2,700-square-foot floor plan last fall for price-sensitive buyers.

"We've had a couple of sales over 4,000 square feet," he said.

Average home sizes fell in previous recessions only to creep back up after the economy recovers. But Baker, of the American Institute of Architects, believes it may be different this time around.

For starters, people are more inclined to think of their homes as a place to live rather than an investment.

"Because of the rapid appreciation, we were seeing in housing prices, people thought more was better," Baker said. "That mentality has clearly changed. Fewer and fewer folks think they should be buying more home purely on speculative reasons."

And the idea of being more green has become prevalent.

"Most homeowners would believe that once we get through this recession, (oil prices and heating costs) will start spiking again, and that's going to be an added cost of maintaining their homes," Baker said.

Utility bills

Stephanie Yungmann, an agent with ZipRealty.com, said more clients are asking about potential gas and electricity bills when considering a home purchase. As a result, buyers, especially first-timers, are looking for homes as small as 800 square feet to 1,500 square feet.

In many cases, Yungmann calls the region's utility, Baltimore Gas and Electric, for a bill estimate before writing a contract.

Before last fall, "I could count on one hand the number of times people have asked me about gas and electric," Yungmann said. "In the last year or so when rates have been going up steadily, almost every one of my first-time home buyers will ask how much the gas and electric will be."

Ramanathan and her husband inquired about the bill for their 1,342-square-foot detached home before they bought it. The couple wanted to keep it around $200 to $300 a month, similar to what they paid in their previous home.

"It was obviously financial, but it was also a sense of how much you were using," Ramanathan said. "It's not just the dollar amount but what it means for consumption."