Smaller Home, Heftier Mortgage

Back when interest rates were low, the average Hayden home was a 1,900 square-foot three-bedroom house that cost $500,000, or about $2,000 a month. This was based on a 5 percent down payment and a 30-year fixed-rate mortgage with a 3 percent interest rate, according to Steve Klingman, the president of the company.

However, with borrowing costs taking up a larger portion of buyers’ mortgage payments, Hayden has decided to reduce prices and square footage in order to maintain stable payments for their customers. The average Hayden home now measures in at 1,550 square feet and has a price tag of around $400,000, or $2,100 a month. But in order to purchase this smaller home, buyers now have to come up with a 10 percent down payment and are subjected to a 6 percent interest rate on a 30-year fixed-rate mortgage, even with incentives.

Mr. Klingman explained, “We are reconfiguring our floor plans, our features, and community design all to get to that payment buyers can afford. People want to own if we can make it attainable.”

In densely populated areas like Southern California, where land costs are high, developers have long been focused on building smaller homes. Features like a side yard instead of a backyard, or a garage that opens to the street instead of a driveway, have allowed for smaller homes and reduced costs. And now, these urban design principles are making their way to the outskirts of cities.

For example, in Hayden’s hometown of Redmond, Ore., which is about 30 minutes away from Bend, Ore., the Cinder Butte Village development now offers homes as small as 400 square feet (a one-bedroom, one-bath with a garage on the back alley). The average home size in this community has been cut in half to around 1,000 square feet compared to two years ago.