Small World Small was beautiful in 2003. From petite appliances made for not-so-big homes to narrow houses designed for tight lots, builders looked at limited space and saw big opportunities. So did buyers, who begged for snug mudrooms and grabbed soaring three-story, narrow-lot floor plans, dreaming of cozy spaces where they'd miraculously keep clutter at bay.

But the most diminutive thing in housing this year wasn't the homes or the contents, but the incredible shrinking interest rates people grabbed to buy those homes. With rates at 45-year lows in June, would-be homeowners couldn't wait to buy new homes, regardless of the economy. Such demand led to some very big numbers in 2003: 1.065 million new-home sales and 1.445 million single-family starts, as projected by the NAHB at press time.

Builders at the top saw value in small things as well. Last year, acquisitive builders generally pinpointed smaller companies in secondary markets for their mergers and acquisition deals, carefully and precisely adding new markets or new product segments to their home building portfolios.

In many of those markets, major and minor, buyers sought to blend the past and future in their new homes. In fixtures and appliances, they sought the familiar, choosing faucets and refrigerators with a nostalgic look. But they left the 19th and 20th centuries firmly behind in the functionality of their homes and communities, seeking energy efficiency, high-tech features, and home theaters. And their developers are now building 21st-century neighborhoods connected by wireless networks, creating perhaps the smallest world of all.

Demand Driver With interest rates at 45-year lows, builders thrived despite war and economic weakness.

Even in a wobbling economy, few can resist a bargain. And that's what housing became in June, when mortgage rates fell to 5.21 percent on a 30-year, fixed-rate loan for two weeks in a row, according to Freddie Mac's weekly survey. Would-be homeowners rushed to buy, pushing new-home sales to the hottest pace on record, at an annualized rate of 1.2 million homes. One month later, in July, starts hit the highest level since 1986, registering an annualized pace of 1.89 million.

But builders felt the demand all year long. "It was a record year for us, both in terms of revenue and profitability," says Sid Dunmore, CEO of Dunmore Homes in Roseville, Calif. This year, the Northern California builder expects to close 825 homes for $250 million in revenue, which represents a 43 percent jump in closings and a 56 percent rise in revenue from 2002.

Such strength certainly wasn't guaranteed. Faced with the threat of war with Iraq and the reality of a fragile economy, builders weren't quite sure what to expect from 2003. Thanks to those unbelievable interest rates, though, housing boomed. At press time, single-family starts and new-home sales (1.445 million and 1.065 million, respectively) were projected to surpass last year's record-breaking numbers.

Next year should stay solid as well, as rates remain in the 6 percent neighborhood. Even if they rise, the impact may not be as great as people fear. "Compared to 25 years ago, we're much less sensitive to mortgage rates," says Michael Carliner, NAHB economist. "It used to be that when rates went up, it was harder to get a loan [because local banks didn't always have the money to lend]. But now, because of the secondary mortgage market, we have a safety valve, so the impact of rising rates is less. People buy a home and say, 'If the rates go down, we'll refinance.'"

Given such demand, builders say land supply remains a top issue. "The biggest problem we have is the lack of affordable land with infrastructure," says Dunmore. "We're burning up the backlog of land we built up in the 1990s."

Country Charm Millcreek, a Pennsylvania smart-growth community, starts up amid rolling hills, horse pastures, and plenty of open land.

It's fitting that the hub of Millcreek, an 87-acre residential development in Lancaster County, Pa., should be a farmhouse, complete with double-decker porches, rocking chairs, and a general store. Keeping the best of West Lampeter Township's rural appeal was paramount to this project.

"Working closely with the Charlan Group, our developer, we were able to take a very special piece of property and apply some new thinking about how it was going to be planned and built," says Rob Bowman, president of Charter Homes, a Lancaster County builder. Millcreek took almost three years to get approved; the process resulted in a new county Neighborhood Design Option ordinance that calls for a mix of housing types, better architectural design, formal and informal open space, and more homes on less land.

In January, Charter started construction on what will be 103 single-family homes, 54 carriage houses, and 80 townhomes, all set along narrow streets, with miles of winding trails, woodland swaths, and a full 31 acres of open space.

We Asked ...
Hot Markets
Builders say the hottest market for housing in 2004 will be:
Florida 23%
California 7%
Nevada 4%
Texas 2%
Other including
Arizona and Md./Va./D.C.
Source: BUILDER Survey

"With Millcreek, the township had the vision to look at the rules as to how land should be used and said, 'Let's talk about change,'" says Bowman. "We're at the point where everybody wants to be a part of a solution that allows a community to grow while maintaining what brought us here in the first place."

Survey says: We asked ... you answered. This fall, BUILDER surveyed 2,000 of you by fax, looking for your thoughts on buyer preferences, hot markets, technologies, and more. You'll find these tidbits scattered throughout this story wherever you see "We Asked." Is there a trend you'd like to see more coverage of? Let us know. Contact Denise Dersin at

Downsizing Small appliances hit the big time.

Face it: Small gadgets are cool. The same can be said of the new wave of dishwashers, refrigerators, and ranges. Though kitchen appliances in general are actually getting bigger, to keep pace with the ever-growing American home, in 2003 small units made a big splash. Small products offer a solution to condo and townhome owners who desire traditional high-end appliances but lack the space. Single-family homeowners are using the products to trick out wet bars, entertainment rooms, or outdoor kitchens.

One of the standout products by Benton Harbor, Mich.-based KitchenAid is Briva, a double sink with a dishwasher on one side. Irvine, Calif.-based Fisher & Paykel's 24-inch, space-saving DishDrawer is one of the hottest dishwashers to come along in years. Greenwood, Miss.-based Viking Range and Cleveland, Tenn.-based FiveStar both offer high-end freestanding 24-inch stainless steel gas ranges with features such as 15,000-BTU burners. Need a small refrigerator for a tight space? Try Milwaukee-based U-Line Corp.'s Echelon, a double-drawer refrigerator with 5.5 cubic feet of storage capacity. With such versatility, the small appliance category is likely to continue growing, manufacturers say.

Keep It Simple Clean design wins out over fussy treatments.

Increasingly, residential architecture can be characterized by dual tracks: traditional designs and those that reject tradition. In this duel, designs characterized by simple, straightforward touches stand out.

"We're seeing more people interested in smaller homes, trying to maximize their dollars, and I think that might be going a little bit more toward keeping the quality level up," says Peter Twombly of Estes/Twombly Architects in Newport, R.I. "With the cost of construction so high, people want more built-ins than they have in the past, which gives architects more to design and leaves a room less cluttered. We're now doing complete interiors, including material selection and colors."

A house Twombly designed for a couple in Warwick, R.I., fits the keep-it-simple mantra. Clean maple woodwork and floors, streamlined built-ins, and a slate fireplace surround all contribute to a calm, inviting interior. No muss, no fuss.

Wireless Living Large developers roll out wireless networks at residences, town centers, and schools in projects that will set the standard for integrating technology within a community.

Wireless will still be among the most hyped technologies in the year ahead; the only difference in 2004 is that wireless will be more broadly offered as part of a new community.

Large urban infill projects will lead the way. Forest City Stapleton Inc., the developer heading up the $4 billion Stapleton project, which is building 12,000 to 15,000 homes and apartments on 7.5 square miles on Denver's old Stapleton Airport site, envisions a full wireless community.

Work started this past fall, with the rollout of wireless access points--or hotspots--at the town center and the installation of wireless access points in 10 homes. Plans call for a tech high school with a wireless campus and continued rollouts to local residences.

Another project with a grand wireless vision is Playa Vista in Los Angeles, which plans to install a combined cable modem and wireless router in every unit in the community. The long-delayed project, on 1,087 acres on the city's west side, has about 1,200 of the 3,246 units built for the first phase, and plans are in the works to win approval for another 2,600 units sometime after the first of the year.

And expect more builders to steal a page from the Village at Tinker Creek in Roanoke, Va., which offers homeowners a wireless router with its technology option and has installed a wireless access point at its community center.

Part II

Part III

Part IV

Learn more about markets featured in this article: Lancaster, PA.