Big Homes Are Back in Business

 

MECHANICSBURG, Pa.—Jamie and Ashley Mengle spent the past four years in a 1,920-square-foot, three-bedroom town house. In July, they will upgrade to a 3,200-square-foot single-family home with four bedrooms here in this suburb of Harrisburg.

The Mengles are at the forefront of a surprising trend in a number of new subdivisions across the nation: Bigger homes are making a comeback.

"There's no doubt we're a lot larger than we were a few years ago," said Steve Ruffner, president of the Southern California division of KB Home, one of the nation's largest builders.

KB Home says the average square footage of houses currently under contract is 2,079, an increase of 13% from last year. And more KB buyers are picking models that exceed 3,500 square feet.

That is a change from the past few years, when builders were downsizing houses to accommodate an era of frugality and austerity. As the economy slowly improves and some consumers' anxieties ease, buyers are upsizing again—though there is far less demand than before for huge houses loaded with upgrades.

According to the Census Bureau, the average size of a newly built home was 2,480 square feet in 2011. That was up 3.7% from 2010 and represented the first annual increase since 2007.

Charter Homes & Neighborhoods, the company that is building the Mengles' new house, said the single-family homes it is delivering this year are 200 square feet larger than the ones they delivered last year, which works out to an increase of 5% to 10%. "The big sellers last year were town homes," said a company representative. This year, she said, the hot sellers are large colonials clustered in parklike settings.

With the trend, some builders are seeing increased sales prices. In April, the average home price was $282,600, up from $268,900 a year earlier, according to census data, though that is down from $329,400 in early 2007.

In its first quarter, KB Home saw its average selling price rise 6% from a year earlier to $219,000. 

The return to bigger houses—which has taken industry watchers by surprise—indicates that the housing downturn paused, but didn't kill, America's love affair with supersize abodes. The trend is an encouraging sign for builders, which last year sold just 306,000 newly built homes, the lowest number since record-keeping began in 1963.

A major driver behind the bigger-home trend is record-low interest rates, under 4% for a 30-year fixed-rate mortgage, which allow some buyers to move up without necessarily making larger mortgage payments.

Some buyers say they reason that in the long run it is cheaper to buy a big house now, even though they don't yet necessarily need the space, and spread the cost over the life of the loan, instead of spending money down the road for expansion projects. 

And because many builders slashed prices in recent years, especially on big houses that once were slow sellers, the cost difference between midsize and large homes in some communities is nominal. 

In Orlando, Fla., at KB Home's Sawgrass Plantation development, a 2,792-square-foot house currently is priced at $212,000, while a 3,512-square-foot home is priced at an additional $6,000, or about $40 a month with a 30-year fixed loan.

In one West Coast KB Home development, buyers can get 1,050 additional square feet for $166 a month over 30 years. Mr. Ruffner said that adding another room is inexpensive during construction, particularly because the company gets a discount on large orders of materials.

Demand for bigger houses also is coming from families that were stuck in homes that were too small but were afraid to trade up during a weak economy. Now, some say they are feeling more confident and are ready to make a change. 

"We just don't have enough space," explained Michael Tidwell, a father of three who lives in a 1,400-square-foot town house and is in contract to buy a 2,800-square-foot home in Mechanicsburg for $340,000. In the new house, which should be finished this fall, there will be enough bedrooms for the children, and the kitchen will be twice as big.

"The kitchen is going to be humongous compared to what we have now. We actually feel like we can live and not be bottled up," he said.

Even companies known for building large houses say their buyers are scaling up. Toll Brothers, the Horsham, Pa., builder associated with sprawling suburban spreads, said buyers are bypassing its "smaller" models in Randolph, N.J., that start at 3,700 square feet and are priced starting in the mid-$700,000 range. Instead, more are gravitating toward a 4,800-square-foot house that, including upgrades, often sells for $1 million or more.

While buyers are upsizing, they are still being practical by adding living space, not "bling options," said Mr. Ruffner. Out of favor are expensive upgrades such as oversize sunrooms, vaulted ceilings and soaring entry halls.

"Structural options," such as adding a bedroom, "are much more popular" among buyers, Mr. Ruffner said. 

"They seem to be going for those types of product that are maybe a better value all around," he said.

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