Toll Brothers Inc, which dominates the market for large, expensive houses known as McMansions, is shrinking its square footage as the worst housing market downturn since the Great Depression grinds on.

Toll's newer offerings in Las Vegas include some of the company's smallest and cheapest single-family detached homes.

It's no secret that Las Vegas leads the nation in foreclosures, said Nevada division head Gary Mayo. The dramatic decrease in home prices dictates where we need to go with pricing and product.

The impact of a federal homebuyer tax credit and stabilizing unemployment numbers has fueled talk of a housing recovery, but uncertainty lingers. Sales of both new and existing homes fell in February.

In Las Vegas, Toll has responded by including stucco, tile-roof houses measuring 1,673 square feet and costing in the low-$200,000s in a community called Traccia.

That is less than half the average size and price of Toll's single-family, detached homes.

To further reduce its prices, Toll is downgrading the amenities and fixtures it offers as standard in these smaller homes. Buyers can still add granite countertops and the like if they want to pay extra, Mayo said.

Toll also built smaller homes a couple of years ago in southwest Florida, another battered housing market, and plans to do so in Reno, Nevada.

The biggest U.S. luxury builder, Toll sells a range of products, including second homes, apartments and senior housing.

The move to smaller floor plans isn't a sea change, said spokeswoman Kira McCarron. It's more of an add-on.

But the Traccia homes signal a subtle shift in Toll's focus away from the suburbs and toward denser, smaller housing, said Ticonderoga Securities analyst Stephen East.

Toll is downsizing its product and making it more attractive to the consumer, East said. If that product moves well in Vegas, you can rest assured you'll see it in other places.

Toll's City Living unit, which constructs apartment buildings in New York City and northern New Jersey, is further evidence of this strategy, East said.

The company has said it wants to expand City Living to Boston, San Francisco and Washington.

MCMANSIONETTES?

But Toll's signature has long been suburban homes with extra rooms, glitzy fixtures -- and the highest price tags on the market.

The average size of a single-family, detached Toll Brothers home is 3,400 square feet. The company's average home price in 2009 was $590,000, compared with $256,000 for its peers.

In Nevada, competition from foreclosures has forced prices -- and therefore size -- down, Mayo said.

One in every 102 homes in Nevada received a foreclosure filing in February -- more than four times the national average, according to data firm RealtyTrac.

Nobody's buying million-dollar houses in Las Vegas anymore, said local real estate agent Lisa Cobb. That was the entry for Toll Brothers.

Cobb recently sold one of Toll's smaller homes as a pied-a-terre to an older couple whose grandchildren live in Las Vegas.

Single-family homes under 2,000 square feet are unfamiliar territory for a builder that refused throughout the downturn to shrink its houses while its peers did just that to compete with foreclosures and capture the coveted entry-level buyer.

I've been asked to provide interviews to half a dozen different newspaper stories about how the buyers' desires have changed dramatically and everybody wants less and smaller, Executive Vice President Doug Yearley told investors at a UBS conference in November. We're never quoted because we just don't agree with the thesis.

But Ticonderoga's East said building smaller was a smart move for Toll, as long as it does not tarnish the company's reputation for high-end elegance.

Cobb, the real estate agent, sees little danger of that.

If you hear Toll Brothers, you think class, she said. They have to respond to the economy.

Indeed, Mayo stressed that the move toward modest homes was temporary.

We're going to do this as long as the market dictates we do, Mayo said. But as the market allows us to add amenities and grow square footage, we'll probably be among the first to do it because that's who we are.

(Reporting by Helen Chernikoff; Editing by Lisa Von Ahn)

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