In southern California, a few neighborhoods resemble ghost towns because so many homeowners have had to walk away from their mortgages. But in Beaumont, about 100 miles east of Los Angeles, developer KB Home is offering some smaller floor options, even as the housing market continues to not fare well.
KB Home Southern California Division President Steve Ruffner is showing off a 1,239 square-foot home in the city. He never dwells on the downsized floor plans and instead emphasizes the large entertaining and dining room spaces.
"Notice the hallways are large, a lot of storage — it comes with the house and you have big deep closets," he says.
During the housing boom, the Inland Empire, as the area is known, was one of the hottest real estate markets in the U.S. During the bust, it's no surprise it's one of the hardest hit. The streets here are lined with foreclosures and short sales — big homes at bargain prices. But Ruffner insists there is a market for KB's scaled-down houses: half as big and substantially cheaper.
"Our whole motto is affordability, and that's what we strive for the first-time buyer, and that's really been our focus for the last five decades," he says.
But that's not exactly true. KB, the fourth largest home builder in the country, like almost every other developer, built bigger and more expensive homes during the run-up. That was a substantial shift for the company founded by Eli Broad, who made his billions building modest homes in the Sun Belt for modest-income families. KB's current CEO, Jeff Mezger, says the company is getting back to its roots.
"We did lose our way," he says. "That has been a great reinforcement to me, that we need to stick with first-time buyers because there is always more of them. Every year there's more first-time buyers in the marketplace."
Mezger won't predict when that marketplace will stabilize and his company just reported its eighth straight quarterly loss. But Mezger, the son of a Chicago home builder, says there still is money to be made in this down economy.
"We think it would be a mistake to just sit pat and wait for things to get better," he says. "We are being proactive and put a product out there that appeals to them."
Ken Henton is taking a final walk through a home she just bought in nearby Riverside. It was a short sale, meaning the original owner sold it at a loss.
"I'm a first-time homebuyer, and it's just very exciting — especially the way the market is," she says. "It's a buyer's market."
Trena Knowlton of Zip Realty says most buyers don't even ask her about newly built homes — they're interested in foreclosures.
"You can get a house that has all the upgrades in it for a lesser price than you can walking in new," Knowlton says. "You may have to shop a lot to find exactly what you want."
Henton has been looking for more than a year, and wanted a big home. This townhouse, overlooking a golf course, is 2,000 square feet, and there are plenty more like this still on the market.
But Joel Kotkin, a national commentator on urban issues, says Americans are entering an era of austerity. He says the days are over when a first-time buyer would get a huge house with no money down.
"I mean, basically we were living in a fantasy land where instead of the starter home was a modest home ... it was like going out of college and your first car was a Cadillac," Kotkin says. "But the idea of building up equity and saving and making the move up when you could afford, is something that has been forgotten in the last 10 to 15 years and now we have to go back to it."
And, Kotkin says, most first-time homebuyers still prefer houses over condos, something on which KB Home is banking.
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