Small houses are a perfect fit for many homeowners
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The cost: $40 to $50 per square foot, or less than $50,000 for the largest floor plan.

Once word of the Katrina Cottage got out, interested customers lit up Lowe's phone lines. "Surprisingly, we were getting more inquiries other than from the Gulf for mother-in-law houses, beach cottages, mountain homes, guest houses, even as primary residences," says Jennifer Wilson, a spokeswoman for Lowe's. "We've gotten more than 10,000 calls in the past six or seven months from people asking when it's going to be available to them."

So far, Katrina Cottage plans are only available for purchase online for Lowe's customers in the other 48 states. Included is a shopping list of materials that can be ordered through your local Lowe's store to build your own Katrina Cottage.

A major retailer selling prefabricated homes is not without precedent. Sears did it for years. But Cusato says the availability of a durable, new, "right-sized" house touched a nerve with people tired of having to carry the financial burden of oversized homes.

"A lot of times, houses are sold because Realtors convince somebody that it's not necessarily what they may want, but it's what they have to have to resell. So many people are living in houses not because it's the exact house they want but it's the house they need to sell out of," she says.

"It is a failure of the architecture profession that we haven't built better places so the only thing the buyer can do is talk about square footage, because we haven't given them anything else to talk about. It's a failure of urbanism that the Realtors have had to sell architecture that way."

Ultimately, says Cusato, the solution lies in well-built communities where homes can be of a human scale, instead of stretched out of shape in an effort to fit in everything from a fitness room to a movie theater that should be shared by the neighborhood.

"It's the idea of quality over quantity," she says. "Then you don't have to have everything in your house because you have the 'outdoor room,' you have the street, so you can also build smaller."

Downsizing's big challenges
Building small does have some unique challenges, often starting with the location.

To come up with the home they love, the Texas architect Rick Black and his wife just happened upon a half-lot that was practically unbuildable in their desirable but pricey Hyde Park community. That was just the starting point for the one-bedroom, 980-square-foot modern they built in 2004.

"'We had kind of a difficult time getting the house design appraised to get our construction loan. In terms of size of newer construction, there was nothing comparable for the appraiser to use," Black recalls.

He admits it costs more to get a smaller house; he estimates his home cost between $150 to $180 a square foot, including his "sweat equity." "For a developer, there is no reason to build those precious little jewels," Black says. "It's not rewarded by the market."

But Black contends it's a great way to get the house you really want, without sacrificing resale value. Their home recently appraised at $211,000; he estimates its current market value at more than $250,000.

"Our private clients, they get that," he says. "They don't need to be swayed by profit-taking as their primary motivation."

Contributing editor Jay MacDonald writes from his home in Austin, Texas.