First-time home buyers being lured by 'small is beautiful'

Less brick, less mortar, less house, and less money. That's the formula the housing industry is using to get ''first-time buyers'' into the market, now that mortgage rates have come down.

The American Dream House, in fact, is no longer a rambling ranch house. Instead, as is evident here at Kaufman & Broad's Le House development, the hottest-selling house is a small, compact single-family residence built for the ''working couple.''

The K&B home has only 940 square feet of living space, or about 200 square feet less than the average home. Because ''the price is right,'' interest rates are down, and the marketing approach has worked, however, the units are being snapped up. Since January, says Bruce Karatz, president of Kaufman & Broad Development Group, 50 of the new smaller units - priced at $75,000 to $93,000 - have been bought at two subdivisions.

In nearby Valencia, the situation is similar. According to Jerry Polter, a sales representative for Valencia Corporation, people are buying smaller ''patio'' houses - homes connected to each other by a common wall - which won't be built until July or August. He says many of these are first-time buyers who were told by their accountants during tax season to buy a house to cut down on their tax bills.

For most of the buyers at both developments, this is their first house.

What is happening here is happening nationally, says Michael Sumichrast, chief economist at the National Association of Home Builders. He says some 65 percent of all the new houses being bought are being taken by ''first-timers.''

And he says small homes are what's drawing them into the market. ''This is the first major change in the housing industry in 40 years,'' Mr. Sumichrast says. ''Everywhere I go,'' he continues, ''in Jackson, Miss., in Victoria, Texas - wherever - people are buying smaller houses.'' In California, developers are building condominiums with only 500 square feet of space.

''Downsizing'' the houses is no accident. According to Mr. Karatz, the idea of the smaller house is to cut costs for the developer so the house can be priced to sell, while still giving the consumer a home that has visual and emotional appeal.

Thus, at Le House, everything is smaller. The kitchen has been reduced in size because most of the buyers of these homes are working couples. Thus, there is no need for a large ''country'' kitchen, just a small, practical one. Also, there is no ''family room,'' since most of the buyers don't have children. Without children there is no need for hallways, which give the parents some breathing room from their children. Some developers consider hallways ''wasted space.''

At the same time, the company has spent more money on some of the visual aspects of the house. For example, the homes at Le House have cement tile roofing, which is more attractive. And the bay windows in front of the houses have ''real windowpanes.'' In some new houses the windowpanes are painted on, Mr. Karatz says.

In addition, by adding a fireplace and other ''earthy'' touches, says Michele Ann Faith, a youthful-but-convincing sales representative at Le House, the homes appeal to young couples. And through the use of sliding glass doors that open out into an open atrium, the house appears larger than it is.

''People ask us how we measure the house,'' says Mr. Karatz, who notes that the sales literature on the homes intentionally does not give the buyer the total square footage. ''We don't want to get into a comparison game on the basis of space,'' he explains.

Most of the new buyers are not out to ''make a killing'' on their new homes. Mr. Polter says most of the buyers are interested in the security of owning their own home and the tax shelter aspects of it.

Mr. Karatz agrees: ''In the 1970s when people talked about housing they said, 'Who cares if you can afford it - buy it.' The recession has changed that a lot.''

The first-time buyers have also been encouraged by falling mortgage rates. In the case of Le House, first-time buyers can finance 95 percent of the cost with a fixed 12 percent, 30-year loan from the Federal Housing Administration (FHA) or the Veterans Administration. Or, if they qualify, they can borrow at 10.625 percent, using money borrowed by the City of Los Angeles in the tax-exempt-bond arena. For an individual buying a $90,000 house using FHA money, the mortgage, insurance, and taxes would run about $908 a month. About 99 percent of this is tax deductible.