Downsized America: Homebuyers Look for Less

June 29, 2009— -- For some home buyers, bigger is not always better.

After he was laid off from his job as a graphic designer, Doug Keyes said it was a practical decision to trade in his family's five-bedroom home in Seattle for a much smaller pad.

"Financially, it's more secure that way," the 45-year-old artist said. "We weren't any happier in a big home, so why not go back to a smaller home?"

Keyes, who sold his house about a month ago, is currently looking at homes that are about half the size of his old house. He's even looked into two-bedroom, one-bathroom homes for his wife, two kids and dogs.

But finances aside, the decision to move is also economical, Keyes said.

"It was a great house and a great part of town, but we found out that we weren't using all the space," Keyes said of his old home. "We were accumulating too much stuff."

Keyes is one of many home hunters looking to downsize to a more modest home. Though he's been house hunting for a year, Keyes said he's optimistic about the search.

"As we've been looking, we watch prices go down and so better homes keep falling into our price range," he said.

Glenn Kelman, CEO of online real estate company Redfin, said that his agents have been seeing homebuyers "all over the place" seeking smaller homes.

"I think there was rationality a couple of years ago that the more house you bought the bigger the opportunity you had to sell it at some sort of huge profit," he said. "Now it seems like everyone wants to live within their means. Partly it might be an environmental shift; mostly I think it's due to the recession. We see it in almost every city we do business."

While Kelman said most people are looking at smaller homes for financial reasons, he also said that "something has changed in American society."

"I think there is just now this feeling that the McMansion is now gross," he said.

There are some baby boomers who are now downsizing, but Kelman said most of the change is actually coming from families who would normally be looking to upgrade.

"People that you would normally expect to get to as much land as they could, as many bedrooms as they could are just making do with less. They like a cozier house and they want to simplify their life."

He said they are just tired of trying to keep up with the place, tired of cleaning a large house and tired of maintaining it.

Kelman should know. He just moved from a single family home to a townhouse.

"As soon as I was in there, I just felt lost in the center of this big house," he said of the old place. "There were rooms we never went into. There were boxes we never unpacked."

Jim Gillespie, president and CEO of Coldwell Banker Real Estate, isn't sure about this trend. He has heard anecdotal evidence but said that people right now are just looking for the best house for their money.

"I don't think it's anything major," he said.

The Census Bureau, which tracks home size, does not have post-recession numbers. And while some builders might now be constructing small homes, that doesn't show which existing homes are more popular.

But the builders' actions can be a good window into what consumers want today.

Most of the newest homes built are smaller and sold at lower prices, said John McIlwain, the senior resident fellow for Housing at the Urban Land Institute.

"The people who seem to be buying homes now are people who were priced out of the market before, such as younger first-time homebuyers," he said. "They'll find whatever is cheap on the market, and those tend to be smaller homes."

The trend towards building smaller homes started even before the height of the housing crisis, McIlwain said. To bring home prices down to an affordable level, developers began building on much smaller lots and eventually began building smaller homes. In designing space-efficient homes, many have turned to open space set-ups, where areas like the dining room and kitchen are not separated.

"This next generation of home buyers is much more sensitive about energy use and energy prices," he said. "They're going to ask, 'Why buy a bigger house than we need when we can't afford it, it's expensive to run and it takes a lot of time to take care of?'"

Even after the recession, McIlwain expects homebuyers to continue to prefer a smaller pad.

"The days of McMansions are over," he said. "There will still be some built but by and large we already have enough McMansions to satisfy the demand."