How Much House Do You Really Need?

Last Updated Nov 18, 2009 12:43 PM EST

You probably need a house bigger than this--but not by much.
Emerging from this recession is a new rule: Buy only as much house as you need.

Unfortunately for their finances, Americans have been doing anything but. You have only to watch a few episodes of "House Hunters" on HGTV for proof. Unless they live in a high-priced urban area where space is at a premium, like Washington, D.C. or San Francisco, home buyers, even those without children (or with only one) are searching for jinormous houses. Anything other than a five-bedroom home with three bathrooms, a great room and a living room, an eat-in kitchen and a dining room, a two- or three-car garage and a "bonus room" is considered "tight." Rejected is any dwelling without a "master suite" vast as the Kalahari which includes a walk-in closet and a bathroom with a two-sink vanity.

This is a far cry from what Americans considered sufficient in the 1950s. According to the Census Bureau, the average size of a house has more than doubled to 2,349 square feet from 983 back then. My parents' dream house had only two bedrooms--my sister and I shared, and I think we survived the trauma--and one bathroom. Maybe I am blinded by nostalgia, but I don't remember any fights over the shower or the tub.

To buy these bigger, more expensive houses, which rose in price partly because of inflation, homeowners took on huge debts. Mortgages became so gigantic that unless lenders loosened their traditional standards, for example, that total housing costs (principle, interest, taxes and insurance) not exceed 28% of gross income. In recent years, many homeowners were paying as much as 40% and even 50% of their incomes for housing. Eventually lenders became even more creative. To help folks get into these behemoths, banks offered no-down payment, variable rate financing, and as a result, we've landed in a pickle, with hundreds of thousands of people in foreclosure, too much housing inventory and a precipitous drop in prices. Making the problem worse, was homeowners' proclivity to borrow more to finance lavish upgrades.

Big houses raise other expenses too. Property taxes and homeowners insurance cost more. And, as my down-to-earth mom points out, you have to clean the damn thing--or hire someone to do it for you. Finally, there are massive bills to heat and cool the place. The over-investment in houses has actually threatened the financial stability even of those families not endangered by foreclosure. Huge mortgages and repeated refinancings leached equity out of houses, particularly for older homebuyers, says Barry Bosworth, an economist at the Brookings Institution. The recent drop in prices further diminished the value of their houses. "They took a lot of money out, and now there's nothing left," he says. As a result, retirement has become iffy.

Big-house madness is starting to erode. Already the average square footage of newly constructed houses has dropped about 15% from 2,629. And even though many of those mini-mansions have suffered huge drops in price, families now in the market should carefully figure just how much house they need, lest they wind up broke like their elders. For guidance, you can consult "Square Feat: Foot Steps" by Kansas City, Mo. architect Dan Maginn, whose advice is also featured on Get Rich Slowly, one of my favorite blogs. Maginn figured that he, his wife and child didn't need more than about 1,200 square feet. When I thought about it, I realized that my husband and I use just a few rooms: the kitchen, our bedroom and the den--and, of course, the bathroom. When our kids lived at home (and even when they were at home, they were out with their friends) add two bedrooms As for the two-sink vanity, I decided that I really don't want to stand next to my husband while he's gargling and spitting. Yuck!

How much house do you think you need? The results may surprise you.