The declining “McMansion to Multi-Millionaire ratio”

One analysis looks at the popularity of McMansions (amidst articles claiming they have returned) via a ratio of McMansions to multi-millionaires in the United States:

We can get a good contemporaneous gauge of the popularity of McMansions by dividing the number of new 4,000 plus square foot homes sold by the number of households with a net worth of $5 million or more: call it the McMansion/Multi-Millionaire ratio. (There’s no universally accepted definition of McMansion, but since the Census Bureau reports the number of newly completed single-family homes of 4,000 square feet or larger, most researchers take this as a proxy for these over-sized homes.)

The McMansion to Multi-Millionaire ratio started at about 12.5 in 2001 (the oldest year in the current Census home size series)—meaning that the market built 12 new 4,000 square foot-plus homes for every 1,000 households with a net worth of $5 million or more. The ratio fluctuated over the following few years, and was at 12.0 in 2006—the height of the housing bubble. The ratio declined sharply thereafter as housing and financial markets crashed.

McMansiontoMultiMillionaireRatioEven though the number of high-net-worth households has been increasing briskly in recent years (it’s now at a new high), the rebound in McMansions has been tepid (still down 59 percent from the peak, as noted earlier). The result is that the McMansion/Multi-Millionaire ratio is still at 4.5–very near its lowest point. Relative to the number of high-net-worth households, we’re building only about a third as many McMansions as we did 5 or 10 years ago. These data suggest that even among the top one or two percent, there’s a much-reduced interest in super-large houses.

An interesting measure that tries to put together how many wealthy people there are (the ones who can build and purchase McMansions) with how many new large homes were constructed (with the rough proxy of square footage – not all homes over 4,000 square feet would be considered McMansions). The conclusion is interesting: the number of McMansions being built today is quite lower than the peak ten years ago or so. So, when journalists write that the McMansion is back (usually with a negative tone – our wild spending and consumeristic days of the early 2000s are set to return!), it is not at the same scale as we are still in the middle of a depressed housing market.

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