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Downsize my space

Marketplace Staff Aug 18, 2006
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TEXT OF STORY

KAI RYSSDAL: We figure there may be 10 or maybe 12 Americans out there who still don’t believe the housing boom is over. Well, the Commerce Department came out with some numbers for you this week: New housing construction activity fell in July to its lowest level in almost two years. And future construction? Yeah, even worse: The number of permits issue for new buildings plunged 6.5 percent last month. For many homeowners, news like that means it’s time to take the profits off the table and think about downsizing to more humble digs. Marketplace’s Bob Moon reports.

BOB MOON: The number of people in the average American household has been going down, but we’ve kept right on demanding bigger . . . and bigger . . . and bigger homes . . .

From an average of around 1,400 square feet just a generation ago to nearly 2,600 square feet by the latest estimates. Lately, though, some in the housing industry hear homebuyers whistling a different tune.

David Seiders is chief economist for the National Association of Home Builders.

DAVID SEIDERS: “The big run-up in average size of new homes has pretty much run its course.”

Seiders has noticed the decades-long climb in home sizes tapering off in recent years, especially now with prices and interest rates rising.

Connecticut architect Duo Dickinson says it’s about time.

DUO DICKINSON: “I think people will naturally trend towards the ‘right sizing’ of homes once they see the really non-aesthetic, purely economic and functional realities of houses that are just too big and often very poorly built.”

Dickinson laments what he calls the “mindless expansion of the American home.” He says some who’ve bought big homes are finding themselves saddled with high maintenance costs from the flimsy construction that made those bigger homes affordable.

There are other reasons to get out from under a home that’s bigger than you need.

Kim Pouncy downsized to a place outside Tacoma, Washington. She used the proceeds to help finance her business designing Web sites. She doesn’t miss the bigger home and possessions she left behind.

KIM POUNCY: “Giving up those things for, like, a goal — which for me, my goal was to have my own business and run my own life and have that freedom — that was a much better tradeoff, but still, I’d rather go that way than keeping the things. I would do it again in a second.”

John McIlwain and his wife just moved into Washington, DC, from the suburbs. He says it was tough paring down a lifetime of possessions, but well worth it:

JOHN McILWAIN: “The mortgage we have now is half the size of the mortgage we had before, and that gives us a lot more flexibility to go out for dinner at night, travel, things like that.”

We could end the story here, on the obvious conclusion that people are downsizing just to simplify their lives. But in New York City, real estate appraiser Jonathan Miller thinks most people are downsizing for exactly the opposite reason: in essence, to UPsize to a second home.

JONATHAN MILLER: “People with a large house in the suburbs are looking and saying, ‘You know, if I sell my house and I buy a smaller one and I take the equity, I can have a place in the city.’ So the function of downsizing is not to save money, it’s really to sort of leverage what assets you have.”

A lot depends on the kind of lifestyle you want. Jan Herman and his wife actually moved out of their Manhattan co-op, to rent outside the city. In downsizing their housing costs, they were able to upsize to more living space:

JAN HERMAN: “It was a huge benefit in terms of taking our profit, which we will invest. And that will create income that will, in terms of our own financial circumstances, will lower our monthly payments in effect.”

Some experts argue this downsizing thing is just a minor trend, a niche market. John McIlwain, who works for the Urban Land Institute, agrees it’s not for everybody.

McILWAIN: “For us, we’re in our early 60s, it makes complete sense for us, both from the point of view of taking some pressure off our budget, getting rid of some things we didn’t need, having an easier way of living, coming and going. I think people who are younger they still have the kids around, no, I don’t think that makes sense.”

McIlwain says homeowners of any age group would do well to reassess their true needs, given energy costs and other rising expenses.

Still, most housing industry executives say Americans have gotten used to having bigger homes. National Association of Home Builders economist David Seiders says it would take something drastic to change that.

SEIDERS: “I don’t really see, or expect to see a broad-based trend toward downsizing at all. And in terms of what people spend on housing, it’ll probably continue to go up.”

In Los Angeles, I’m Bob Moon for Marketplace Money.

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