According to the National Association of Home Builders, for the first time in at least a decade, builders are substantially reducing the size of new houses.

"We're trending toward smaller homes," says Gopal Ahualia, director of research for the National Association of Home Builders.  He says growth in the average size of new single-family homes, which went from 1,750 square feet in 1978 to 2,479 in 2007, is starting to reverse.

His analysis of Census data shows that homes started in the third quarter of 2008 averaged 2,438 square feet, down from 2,629 square feet in the second quarter. Ahluwalia, who began the quarterly analysis in 1999, says there have been slight dips before, but the latest drop was much steeper and is likely to hold even after the economy recovers.

In a survey of builders this month, his group found that 89% are building or planning smaller homes than they had been.

Kermit Baker, chief economist of the American Institute of Architects (AIA), also sees the shift toward smaller houses.   He says it was obvious with high-end buyers even before the economic downturn and he expects it to continue with them.

"Affordability is a major problem," Ahluwalia says, and building smaller usually means cheaper.  Also, he says, people are realizing as household size shrinks that they don't need big homes.

Baker says there is less incentive to buy a bigger, more expensive home as the economy weakens, home prices fall and energy costs remain a concern.  He says people are less likely to see a home as a good investment.

Even high-end buyers, Baker says, are showing more interest in smaller, better-crafted homes.

"People don't want to be wasteful," says JD Callander of Weichert Realtors.  She says they are concerned about utility costs and cleaning requirements.

Clients used to like the status of a big home, she says, but "those days are gone."

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