By Nick Zieminski - Analysis
NEW YORK (Reuters) - Not only is the brutal recession driving more Americans into McDonald's for a cheap meal, but it has also dulled their appetite for McMansions.
Home buyers have lost their enthusiasm for the sprawling houses that cropped up across U.S. suburbs over the past decade. Having learned that property values can go down as well as up, they are flocking to smaller homes that are cheaper to buy, furnish and heat.
Homebuilders -- one of the first sectors to feel the bite of the downturn -- are rushing to accommodate this new frugality among first-time buyers.
"Entry-level buyers are coming out of rentals and coming out of apartments, and they are not looking for 3,000 or 4,000 (square) feet," Steve Hilton, chief executive of Meritage Homes Corp (MTH.N: Quote, Profile, Research, Stock Buzz), told the Reuters Global Real Estate Summit in New York this week.
Meritage, which gets most of its business from first-time buyers, is going along with the trend. For example, it is selling a three-bedroom, 1,100-square-foot (102-square-meter) home in Phoenix for $95,000.
Those cheaper houses are also easier for buyers to finance in an environment of stricter loan terms. A dearth of credit for all but the best-qualified applicants is also forcing many customers to choose smaller homes.
Energy-efficiency helps make smaller houses appealing, said Meritage Chief Financial Officer Larry Seay, although -- so far -- many buyers balk at the additional $35,000 or so to equip a house with solar panels or equipment to send excess power back to a utility.
Small homes are also cheaper to build. They use fewer raw materials, less labor, and require a smaller lot, while inside the home, customers are cutting out luxuries. Marble countertops are out; Formica is in.
Median new home sizes grew for much of the post-World War Two period, from less than 1,000 square feet (93 square meters) in the 1950s to 1,400 square feet (130 square meters) in 1970, then more than 2,400 square feet (223 square meters) in 2004.
According to U.S. Census data, the median size dipped in 2008 to 2,200 square feet (204 square meters), its first annual decline in 13 years, and has fallen further in 2009.
The reversal reflects Americans' nervousness about the economy and about the stability of their jobs, as well as restrictions lenders have imposed as a result of the ongoing financial crisis.
Homebuilders say they watch unemployment figures for a clue to the direction of their business.
The national jobless rate, at 9.4 percent, is the highest in a quarter-century. Next week's report is expected to show a further rise, bringing the rate closer to double-digits, as another 368,000 people lose their jobs.
LITTLE BOXES
U.S. jobs and home sales have headed in the same direction in recent months -- down -- while mortgage rates have risen as bond market investors fret about future inflation and the long-term cost of stimulus spending. Continued...
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