A recent study by Trulia suggests McMansions don’t hold their value:
The premium that buyers can expect to pay for a McMansion in Fort Lauderdale, Fla., declined by 84 percent from 2012 to 2016, according to data compiled by Trulia. In Las Vegas, the premium dropped by 46 percent and in Phoenix, by 42 percent.
Real estate agents don’t usually tag their listings #McMansion, so to compile the data, Trulia created a proxy, measuring the price appreciation of homes built from 2001 and 2007 that have 3,000 to 5,000 square feet. While there’s no single size designation, and plenty of McMansions were built outside that time window, those specifications capture homes built at the height of the trend.
McMansions cost more to build than your average starter ranch home does, and they will sell for more. But the return on investment has dropped like a stone. The additional cash that buyers should be willing to part with to get a McMansion fell in 85 of the 100 largest U.S. metropolitan areas. For example, four years ago a typical McMansion in Fort Lauderdale was valued at $477,000, a 274 percent premium over all other homes in the area. This year, those McMansions are worth about $611,000, or 190 percent more than the rest the homes on the market.
The few areas in which McMansions are gaining value faster than more tasteful housing stock are located primarily in the Midwest and the eastern New York suburbs that make up Long Island. The McMansion premium in Long Island has increased by 10 percent over the last four years.
Read the Trulia report here.
Interesting claim. After the housing bubble burst, some commentators suggested that Americans should go back to not viewing homes as goods with significant returns on investment. Instead, homes should be viewed as having some appreciation but this happens relatively slowly. This article would seem to suggest that return on investment is a key factor in buying a home. How often does this factor into the decisions of buyers versus other concerns (such as having more space or locating in the right neighborhoods)? And just how much of a premium should homeowners expect – 190% more than the rest of the market is not enough?
This analysis also appears to illustrate both the advantages and pitfalls of big data. On one hand, sites like Trulia and Zillow can look at the purchase and sale of all across the country. Patterns can be found and certain causal factors – such as housing market – ca be examined. Yet, they are still limited by the parameters in their data collection which, in this case, severely restricts their definition of McMansions to a certain size home built over a particular time period. As others might attest, big homes aren’t necessarily McMansions unless they have bad architecture or are teardowns. This sort of analysis would be very difficult to do without big data but it is self-evident that such analyses are always worthwhile.
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