To attract buyers, homebuilders are slashing costs and square footage. KB Home is offering a new house in Tucson for $89,999

(Source: BusinessWeek)

Homebuilders, facing stiff competition from a glut of cheaper foreclosures, are reversing their decades-old philosophy that bigger is better. They’re now offering smaller, more basic homes designed specifically for the market’s hottest segment: the first-time buyer.

The median home size has risen steadily for decades, from about 1,500 square feet in 1970 to about 2,302 sq. ft. in the first quarter of 2007, when the trend began to reverse as the housing downturn worsened, according to the National Association of Home Builders. By the first quarter of 2009, the median home size had dropped to 2,239 sq. ft.

“A lot of the features important to buyers during the boom are less important now, including square footage and granite countertops,” says Barclays Capital analyst Megan McGrath in New York. “They still want the most space for their buck, but they’re willing to buy a smaller home if they can meet their monthly payment.”

Read Prashant Gopal’s full article “Homebuilders Think Small” in BusinessWeek (July 28, 2009).

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