Crafts, crafts, crafts. Even "non-crafty" kids can suddenly get very craft-loving when there are great things to do and the other kids are doing it. Look for ideas at the craft store -- take your daughter and let her help choose but keep the right of veto, since she may want to do things that are too messy (painting) or too complex for kids her age. Have a couple of different crafts because making a bracelet or necklace goes by very quickly.
Have them decorate their own cupcakes or even top their own pizzas if they are there over a meal time. Or have them decorate a large cookie each to take home (be prepared with packaging to get the cookies home looking good).
Have them play games. Look online for "games indoor small group kindergarten" and you will probably find a lot of ideas that are age-appropriate and space-appropriate.
Limit the numbers. If your house is small, do not feel pressured to have 10 kids! Tell your child she can have three or five others over (even numbers are good ideas at small parties or group playdates).
Limit the time. You mention two hours -- that's ideal. Schedule things out; have a small activity or something going on while kids arrive since there will always be the early one and a straggler (at my daughter's party at about this age, I had a friend giving each girl a temporary tattoo as they arrived -- used up some arrival waiting time and really distracted them!).
Don't open gifts at the party. Most kids get very quickly bored by that (or even jealous) except for the birthday child. Have your daughter thank the giver as each giver arrives, and then have your husband or another adult whisk the gifts out of sight for the duration of the party. Your daughter can open them afterward. Opening gifts sucks up a lot of time at the party that could be spent on fun!
And please don't think so much about those 500k houses. We have tons of them around us (new one built right next door, new one going up across the street too) but I know the folks who buy them will be in debt big-time. Do what makes your child happy and what you think is reasonable for your space and time and budget. The children will not know or care about how much was spent, or where they went. And you do not have to go to a pool or other place unless YOU want to do it -- don't do it because you worry about what the parents will think of your house.