Tag Archives: CNBC

CNBC: owning a home may be “the new luxury item”

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CNBC suggests the dream of owning a home is becoming less attainable:

Almost half of those people who don’t own a home said their financial situation is standing in the way, according to a report by Bankrate.com released Tuesday. Additionally, 29 percent said they can’t afford a down payment and 16 percent said their credit isn’t good enough to qualify for a mortgage…

“A lot of people could be feeling traumatized by what happened to the housing market and are counting themselves out,” she said…

These days, first-time homebuyers, who are primarily in their 30s, are spending a bigger chunk of their incomes to buy their first house — coughing up about 2.6 times their annual pay; in the 1970s, first-time homebuyers purchased homes that cost only about 1.7 times their yearly salary, according to Zillow.

Tighter lending standards and hefty down payments have further deterred some buyers.

Economic conditions and reasoning can go a long ways to determining who can access parts of the American Dream and when they may do so in life. This reminds me of other analyses I’ve seen in recent years suggesting the delayed age for marriage as well as a decline in marriage is also tied to economics: people want to be more financially secure before they marry. Similarly, buying a home is now being put off – not because Americans don’t want it but because they just aren’t set and the conditions have imposed particular restrictions.

Judges: a dying breed?

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According to the reporters over at CNBC, judges are “disappearing” from the workforce:

It seems counterintuitive that we’re increasingly becoming a lawsuit-happy nation and yet, the need for judges is shrinking. The reason is simple: Budget. From the federal government on down to states, cities and towns, cash-strapped governments are slashing their budgets.

This trend is having and will have profound effects on the U.S. legal environmental.  It is true that today most cases settle (civil) or plea bargain (criminal) long before they reach trial, but they do so under the so-called “shadow of the law.”  In other words, litigants choose not to waste time and money fully arguing their cases when the payoff (winning or losing) is not worth the transaction costs of trial (years of litigation, lawyer fees, etc.).

These settlements and plea bargainings are attractive alternatives to full trials, however, only if trials (1) are an actual possibility and (2) it is reasonably certain who will win.  If there are fewer judges, (1) is undermined.  Moreover, if there are fewer trials–resulting in fewer judicial opinions–(2) is undermined insofar as there are precedents to indicate how current controversies will resolve.  In a world with few judges, potential litigants are thus left with a less-attractive reason to settle/bargain:  uncertainty.

A potentially huge penalty for losing, combined with the cost of not knowing, results in a rational decision to resolve the problem quickly.  This is fine to the extent that it lessens legal combativeness.  It is problematic to the degree that it encourages wasteful payments of “go away money” (civil) or guilty pleas to lesser crimes by the innocent (criminal).

Proclaiming the end of the “McMansion era”

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CNBC reports that the real estate site Trulia.com says “the McMansion era is over.” This is based on evidence that more people want smaller homes:

Just 9 percent of the people surveyed by Trulia said their ideal home size was over 3,200 square feet. Meanwhile, more than one-third said their ideal size was under 2,000 feet.

“That’s something that would’ve been unbelievable just a few years back,” said Pete Flint, CEO and co-founder of Trulia. “Americans are moving away from McMansions.”

The comments echoed those made in June by Kermit Baker, the chief economist at the American Institute of Architects.

“We continue to move away from the McMansion chapter of residential design, with more demand for practicality throughout the home,” Baker said. “There has been a drop off in the popularity of upscale property enhancements such as formal landscaping, decorative water features, tennis courts, and gazebos.”

“McMansions just look and feel out of place today, given the more cautious environment everyone’s living in,” said Paul Bishop, vice president of research for the National Association of Realtors.

And homebuilders are heeding the call: In a survey of builders last year, nine out of 10 said they planned to build smaller or lower-priced homes.

This is interesting information – the McMansion was and is commonly cited as part of the excess of the late 1990s and early 2000s. But I have a few questions and thoughts:

1. We are in the middle of a housing crisis, one that is virtually unprecedented in recent history. Could these results simply be the result of this period? Look at the data over time: Americans since 1950 have progressively wanted larger homes. Might this change as soon as the economy or housing market picks up again?

1a. We would have to wait and see whether this shift might be a longer-term move to an emphasis on quality and appointments rather than sheer space. Since family size has dropped over the years, it makes sense that homes might not get so large. Or perhaps more people subscribe to some green ideas about having a small footprint.

2. There is still some demand for homes over 3,200 square feet. If you look at the Trulia infographics, most people seem to want homes around the 2,000-2,600 square foot range. These are not small homes – they would be slightly smaller than the average size of new homes built in most years of the 2000s and are larger than most American homes built after World War II.

3. This is survey data which gives us some measure of what people want to buy. However, people still have to make choices on the open market – will they turn down larger houses for smaller houses for an extended amount of time?

4. Will home prices go down or stay low in the long run – or will builders make up for having smaller homes with more features that will cost more?

5. There are some questions about whether a downturn in McMansions is part of a larger, more radical shift toward a new kind of suburbia. Perhaps. But even if this were the case, it would take a while for these new developments to be large enough in number to counter the typical views of suburbia and it would also require Americans to develop a new sense of community.