As the lousy economy makes large homes tough to maintain – and the tight credit market makes them even tougher to sell – the rules for remodeling are undergoing their own extreme makeover.

Tacking on square footage with imposing entry halls and drafty great rooms? No longer an instant value-add. Covet those popular restaurant-size appliances and 70-inch soaking tubs? They’re giving way to less sexy – and less energy-guzzling – upgrades. And, as families ride out the lingering recession, more boomers are carving out space to accommodate aging parents and adult “boomerang” kids.

Indeed, compared with the six-figure makeovers of years past, says Kermit Baker, senior research fellow at the Harvard Joint Center for Housing Studies, the most common projects these days are smaller-scale jobs that maintain a home’s value and boost its energy efficiency. In just the past two years, he says, “it’s like we’ve flipped over 180 degrees.”

Jamie McCoy knows about flip-flops. After years of saving, she was practically giddy at the thought of upgrading the kitchen in her mid-century Pasadena, Calif., home. Then a routine energy audit turned up a slew of efficiency nightmares. (Picture rusted-out ducts and an air conditioner eligible for Social Security.) As the housing market continued to plummet, her contractor, HartmanBaldwin, of Claremont, Calif., made an unexpected proposition. With a few relatively minor fixes, the firm could make the home twice as efficient and shave 68 percent off her energy bills. Just like that, the kitchen redo got moved to the back burner. “It made all the sense in the world,” McCoy says.

Not that this kind of gear changing should come as much of a surprise. Shrunken stock portfolios and sliding property values have left homeowners with less cash – and less equity – to fund their dream projects. After doubling between 1995 and 2007, remodeling spending dropped 10 percent last year, according to a Harvard study. And this year it’s projected to slide another 12. Nonetheless, owners will likely invest more than $200 billion on practical, long-term improvements this year. Here’s a look at three of the most popular renovation categories.

GREEN

With square footage no longer the holy grail of home improvement, many owners are turning to a new measuring stick: energy performance. According to the U.S. Green Building Council, the annual market in green building products and services grew from $7 billion in 2005 to $12 billion in 2007 – and even with the economy down, it’s projected to rocket to $60 billion by 2010.

A green remodeling boom not only promises positive environmental impact – residential real estate accounts for 18 percent of greenhouse gases – but it saves money too, since the average American household spends about $2,000 on energy annually. In fact, a few key green upgrades will save enough energy to pay for themselves within five years.

When it comes to bang for the eco-buck, it’s all about cutting consumption, which usually translates into projects that are far less “visible” – except maybe on your energy bills. A good way to start, experts say, is to spend a few hundred dollars on an energy audit to assess how best to save on electricity, water and heating fuel. Many homeowners find, to their surprise, that replacing windows isn’t nearly as important to sealing the house as, say, upgrading the insulation and duct system. (Not to mention, two triple-pane windows can cost more than insulating an entire 2,000-square-foot house.)

And while historically not cost-effective, five-figure upgrades like solar panels and geothermal heat are increasingly affordable, thanks to a 30 percent tax credit offered as part of President Obama’s stimulus package. Plus, many utilities and state governments are pumping up rebates as well.

And if tax relief and monthly savings aren’t reason enough, now there’s a new incentive – jacked-up resale  value. A handful of environmental and industry groups now offer green certification, like the Home Energy Rating System, which tallies up a home’s efficiency score based on things like the “leakiness” of its walls, windows and ducts.

But these aren’t just tree-hugger merit badges. Realtors in Seattle, Portland, Ore., and Orlando are now actively marketing green improvements in their home listings. And in the Seattle area last year, one broker’s survey found that homes certified as environmentally friendly sold for 37 percent more per square foot, and in 18 percent less time, than comparable properties.

SMARTER SPACES

When San Jose, Calif., attorney Andy Faber and his wife, Sandy, recently renovated their kitchen, they committed what a few years ago would’ve been a major remodeling no-no: They actually reduced the square footage of the house by about 80 feet. The project involved getting rid of three rooms – a small bedroom, a bathroom and a laundry area – and enlarging the kitchen dramatically to include a breakfast nook, a work space for Sandy and a TV cabinet so they can watch while cooking. “It’s such a delightful space. We spend so much more time in it,” Andy says.

It’s no secret in this economy that the over-endowed McMansion has started going the way of the McRib. According to the National Association of Homebuilders, the average size of new homes under construction dropped more than 250 square feet in the last half of 2008 – the first reduction in more than 15 years. Remodelers say many of their clients increasingly feel that bigger is not always better. “We had this drive to make our houses so big that they became cold, impersonal spaces,” says Eric Rothman, an Atlanta residential renovator.

Now the watchwords are “intimate” and “functional.” The Fabers’ project reflects the new shrinkage trend of multipurpose “flex” rooms. Sound like those popular “great” rooms of the McMansion era that combined kitchen, dining and family rooms? Sure, but on a more human scale – and with more efficient use of space.

Gone are the cavernous ceilings and expansive floor area that had Junior needing high-powered binoculars just to see the television. And a new bevy of built-ins enhance functionality: extra-deep window sills that double as shelf space; a homework desk built into the far side of the cooking island; and dining booths, which, on average, take up one-fifth the space of a normal dining room. The idea, says Miami architect Steve Mouzon, is to make a home “live larger” than it really is. “If it’s just smaller, the charm wears off pretty quick.”

FAMILY TIME

The charm can wear off even more quickly when the house fills up with unexpected long-term “guests.” According to a recent AARP poll, 33 percent of respondents ages 18 to 49 live with parents or in-laws, as the recession literally comes home to roost. And that’s not counting all the elders who move in with their boomer kids for the usual reasons – or these days, after losing their homes or retirement savings.

If there’s no guest room available (or office ready for double duty), the traditional answer for an extended-stay relative is something a little more private: the so-called “mother-in-law apartment,” or “granny flat.” According to Remodeling magazine, converting an average basement into livable space runs around $61,000, while an average attic upgrade costs $48,400. And although building new space is never cheap – adding a master suite averages more than $100,000 – it can pay off eventually if the homeowners think of the addition as more than a one-time quick fix.

That’s the approach Christian and Mary Ann Lavoie of Shoreham, N.Y., took after her elderly parents were unable to move into their assisted-living community, due to two- to three-year construction delays. The Lavoies had often talked of wanting a sun room, so when discussing the project with the contractor, they asked for features that would make the space convertible once Mom and Dad moved out: lots of windows and glass doors, and a kitchenette area that could be removed in less than a day to make the room feel like a traditional living area. “It worked out so that they are safe and comfortable here,” says Christian. “And when they move out, we’ll have a breakfast room.”

Copyright 2009 The New York Times Syndicate