Everyone likes a little room to stretch out at home, but with the new homes that KB Home is selling, that may be a little difficult.

As new homeowners look to find a mortgage that fits their budget, instead of buying as much home as a lender will let them qualify for, they may want to look at the compact two-bedroom, one-and-a-half bath houses that KB is selling for $64,000 in three suburban subdivisions in Houston, according to BusinessWeek. These tiny homes are 880-square feet.

The home builder is trying to compete with low-cost, bank-owned properties, which account for one of every three homes sold in Houston and nationally. If the Houston homes sell, KB plans to build the small homes in other cities and will target renters.

KB chief Jeffrey Mezger told BusinessWeek that the small homes are a return to his industry's roots in post World War II communities, such as Levittown, N.Y., where 800-square feet was a typical size.

"Any time there's been an age of exuberance and then the economy turns, people get back to 'What do I need?' rather than 'What could I buy?'" Mezger said.