KB Home building smaller homes
KB Home is discovering that less could be more when it comes to luring skittish buyers in a housing slump. In recent months, the company has rolled out a new line of smaller, more affordable homes that it hopes will jump-start sagging sales. The move by one of the nation's largest homebuilders comes amid a worsening housing slump that some analysts now say could last for several more years.
"Smaller homes generate lower revenues, but they sell faster, therefore the cash returns are better," said KB Home's chief executive, Jeffrey Mezger.
Other major builders, including Fort Worth (TX)-based D.R. Horton Inc., also have started downsizing some home offerings. But KB Home has led the way, said Greg Gieber, an analyst with A.G. Edwards & Sons Inc. "They understand the balance, what they can take away and how much they can reduce price having taken that amenity away," he said.
The company declined to disclose national figures on how the smaller homes were selling. But KB said it sold 48 units in the past eight weeks at a Las Vegas community where homes range from 1,267 square feet to 1,608 square feet, and prices start at $195,590. The homes are as much as 500 square feet smaller than homebuyers might have preferred a year ago, Mezger said.
Prices vary, but the smaller homes are as much as 20 percent cheaper than larger versions. Buyers can still opt to add a bevy of amenities, which can drive up the final price.
"Affordability is a real issue today in most of the markets that we operate in," Mezger said. "Across the company we're going to an average smaller-size home."
Source: RealTrends, July 3, 2007
These homes are located in a subdivision called Huntington in southwest Las Vegas. The smallest home at 1,298 square feet is about half the average size of new homes currently being built. Offered at $199,590 it is a two bed room, 1.5 bath two story with a one car garage. See the homes and learn more about them here:
See my posts of May 23rd, "Is Small the Next Big?" and March 29th, "Buyers Choose Better Quality Over Bigger Space" for an in depth discussion of this "smaller new house phenomenon."
We will see smaller houses capturing a larger segment of the market as the home building industry confronts the trifecta of new realities: affordability, energy and demographics:
1. Housing is becoming less and less affordable for more and more people. A big driver in the housing affordability problem is bloating in the sizes of the new homes being built.
2. Energy will continue to cost more and more and more. And as energy costs go up both to heat, cool and run a house and to drive to and from it for every little need, both houses and people's habits will have to change.
3. The married couple with 2.2 children comprises only about 25% of all households, yet nearly all the conventional subdivision lots in sprawl America are aimed at this shrinking demographic segment.
The principles of new urbanism and traditional neighborhood development address these new realities very handily and that is why the new traditional neighborhood will do so well in the coming years.
To learn more, visit Leytham.com here: