Americans are buying larger homes with more amenities at prices that have increased less than the rate of inflation over the past two decades.

The average size of a new single-family home was 2,150 square feet in 1998, the best year ever for housing. That's 22.5 percent larger than the typical home built 20 years earlier, according to the Commerce Department.

New homes are also more likely now to have a two-car garage, central air-conditioning and an extra bathroom.

While the median new home price rose to $151,127 last year -- almost three times as much as in 1978 -- the per-square foot price rose at only a 4.6 percent rate during that period. That's less than the 5.1 percent annualized increase in the consumer price index over the 20 years, government statistics show.

"It's striking," said Michael Carliner, an economist at the National Association of Home Builders. "Once you adjust for size and quality improvements, there's been little increase in house prices."

Builders have kept costs in check by finding more efficient ways to construct houses.

Nail guns speed the work previously done with hammers, for example, and pre-constructed frames are quicker to assemble. Construction companies also have benefited from falling prices much of this decade for raw materials, especially lumber.

As a result, profits are higher. Pulte, which built more homes in the United States last year than any other company, said last week its 1998 revenues rose 14 percent to a record $2.87 billion. Kaufman & Broad's 1998 revenue increased 30 percent to a record $2.45 billion. Home builders' shares also have risen. The Standard & Poor's Homebuilding Index rose 31 percent in the last year, compared with a 29 percent rise in the overall S&P index.

"Builders are becoming more efficient producers," said Steven Hilton, a managing director at Meritage in Scottsdale, Ariz. Shares of Mertitage, which builds homes in Arizona and Texas, have risen almost 50 percent since early October. "We're buying land more efficiently and getting more volume out of subdivisions."

They're also benefiting from record demand fueled by low mortgage rates, rising incomes and strong consumer confidence.

The U.S. home ownership rate rose to a record 66.3 percent in 1998, the Department of Housing and Urban Development said Wednesday. Sales of previously owned homes set a record for the third year in a row. Construction was started on the largest number of new homes since 1987.

The builders group also estimates a record 870,000 homes were sold last year, up 8.2 percent from 1997. The 1998 new home sales figures will be released Tuesday.

The market is expected to stay strong this year, although not at the record highs of 1998, industry analysts say.

Profits have picked up even as builders struggle to hire enough construction workers to meet consumer demand. For all of last year, 348,000 new construction jobs were created, the most since a gain of 403,000 in 1984.

Demand for carpenters, roofers and other construction workers led to higher wages. Over the past two years, average hourly earnings have increased 3.5 percent for construction workers, the largest two- year increase since 5.2 percent in 1982.

And the houses they're building are not only larger, but also come with more amenities. In 1997, 82 percent of the homes built had central air-conditioning, up from 58 percent in 1978, according to NAHB figures. Also, half the homes now have 2 1/2 bathrooms, while 78 percent have a two-car garage. In 1978, 25 percent of the homes built had as many bathrooms and 62 percent as many two-car garages.

One way builders have been able to hold down costs is to put more homes on smaller lots. The average lot size now is about 13,000 square feet, compared with about 18,000 square feet in 1978. Land costs as a share of the sales price of a new home are now about 20 percent, down from a high of almost 29 percent in the late-1980s when a real estate boom in the West sent lot prices soaring.

Published: February 4, 1999

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