Tag Archives: homebuyers

Chicago area homebuilders, buyers expanding into cheaper Indiana

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Some homebuilders and homebuyers are seeking out locations in northwest Indiana that are still within the Chicago region but offer lower costs:

Casting aside long commutes, higher home prices and often mind-boggling property taxes, some Illinois residents are branding themselves as Hoosiers, and more Chicago-area builders are thinking of expanding into Lake County, Ind., to capture that business. Their arrival will change a housing market dominated by local companies for generations and prompt municipalities to act to make sure the growth comes on their own terms.

Three years ago, the region caught the attention of D.R. Horton, the nation’s largest homebuilder by revenue, and it began buying lots in established subdivisions and building homes. Finding success, the Fort Worth, Texas-based company this spring is seeking the zoning necessary for it to move forward with a deal to acquire about 90 acres of former farmland on the east side of Interstate 65 in Crown Point for a 200-home subdivision…

Between 2007 and 2011, a net total of more than 5,600 people relocated from Cook County to Lake County, Ind., according to census figures. More than 55,000 residents of the northwest Indiana county worked in Cook County in 2012, according to state figures obtained by Metrostudy, a housing consulting firm.

Commuting may become easier in years to come. Last week, Illinois and Indiana signed an agreement regarding the development of a 47-mile toll road, the Illiana Expressway, that would connect I-65 near Lowell, Ind., to Interstate 55 near Wilmington.

A few quick thoughts:

1. As the article notes, this might require Illinois residents to rethink their stereotypes of Hoosiers. I enjoyed living in the South Bend area during graduate school but I do remember being struck by the number of people who drove pickup trucks and smoked when I first moved there.

2. There are certain areas of the Chicago region that still have plenty of room for growth: northwest Indiana as well as south and southwest of Chicago in Illinois (roughly between Plainfield and Chicago Heights).

3. This article focuses on areas further in Indiana like Crown Point. According to Google Maps, driving from Crown Point to State and Madison in Chicago is just over 47 miles. That is quite a trip.

4. How much does the presence of Gary affect the willingness of people to move to northwest Indiana? Despite efforts to revive Gary, it still has a negative reputation. Imagine Gary and the surrounding area were nicer suburbs – how many people might want to live that close to Chicago as well as be near the shores of Lake Michigan? Instead, there is a community known for industry, depopulation, and a poor quality of life.

Bad options: “grand McMansion” vs. “cookie cutter townhouse”

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This description of a Season 87 House Hunters episode suggests the homebuyers have two less than stellar options:

Ryan and Stacey have $300,000 to buy their first home outside Baltimore, but they want very different things. He dreams of a grand McMansion, but she wants a cookie cutter townhouse with a uniform look. And since they’re both a bit stubborn, neither one is willing to give an inch. Can they find a place that they can agree on, or will this house hunt become a Battle in Baltimore?

This sounds like a typical House Hunters episode: the couple have different visions on what they want and perhaps they will compromise on a third option that gives them each a little of what they want. But, the choices set up here are interesting. McMansions are disliked by numerous critics. Does Ryan himself say he wants a McMansion or is this description using this as shorthand to describe a large suburban home? Then, is a “cookie cutter townhouse” a superior alternative? Critics of McMansions might note that at least townhouses are denser developments and tend to not be as large. Yet, townhouses aren’t usually known for their fine architecture and a uniform look doesn’t help anyone distinguish themselves. Both McMansion owners and critics tend to buy into the idea that a home is supposed to express yourself – though they disagree on what should be expressed and how – and a townhouse with this sort of description wouldn’t fit the bill.

In new homes, American homebuyers want quality, space, and to disconnect

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A large online survey of homebuyers reveal several big things they are looking for in a new home:

Again and again, they told us they were looking for quality more than quantity, and they said that, even when they were looking for a larger home than the one they currently have. One major attitude that was apparent was this huge desire to disconnect when they come home.

This seemed to show up in their interest in a house with an indoor-outdoor connection, where they could entertain and move easily from kitchen to the outdoors. Another way it showed up is, well, I’m not saying that anyone should disconnect their wireless (service), but this expressed need to disconnect suggests a huge trend for making the master bath feel more like a spa. Builders have to ask themselves, how do we help them disconnect from stress every day? Consumers told us they love a big shower but don’t lose the tub. We asked, “But will you use the tub?” and they said, “Um, maybe not much.” But they want it to be there — 65 percent said they still want a tub in the master bath.

Q: Isn’t that also sort of the way they feel about the dining room — that room that builders have said for years that nobody wants or needs any more?

A: They still want a formal dining room. They want their holiday dinners where they can expand out to 10 or 12 people. A lot of builders have been building houses with just a great room (that could accommodate a large dining table), but 59 percent want a great room and one or two more formal spaces.

The quality and space concerns are not too surprising: they likely want lasting homes that will retain their value and are looking to upgrade to a bigger home. More interesting to me was this desire to disconnect, to feel like their home offers a respite from the outside world. This was one of the impulses behind the separation of work and home life in the modern era: as the world industrialized and cities grew, people started viewing homes as refuges. This put more emphasis on the single-family home as well as on the nuclear family, promoting more private lives. While these private lives have been criticized from a range of people who don’t like the drop-off in community life or the lack of civic engagement (ranging from Bowling Alone to New Urbanists), this desire for private retreats still appears to hold true. What the retreat might look like could take multiple forms – from the room centered on the giant TV to a spa-like bathroom to a backyard oasis to a man-cave – but the money goes toward making sure residents can put off the outside world just a little longer.

Really low mortgage rates may be limiting mobility

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Here is how low mortgage interest rates may be restricting the mobility of lots of homeowners:

But what does the uptick mean for those homeowners who did take advantage of ultralow rates? According to researchers at DePaul University’s Institute for Housing Studies, it has created a new population of homeowners who are seemingly stuck in their homes.The housing crisis created a large class of people who couldn’t sell their homes because they were underwater, owing more on the mortgages than the properties were worth. But in addition, another class of homeowner has formed, those who took advantage of the low rates and would have to give them up if they sell their homes.

Compounding the increase in interest rates is that the home price gains seen in Chicago and other markets last year are moderating. As a result, homeowners who refinanced, and those who bought homes at the low rates, could see smaller home price appreciation going forward. Yet even if they buy a house for the same price as the one they are selling, it will cost them more because of the higher interest rates. That scenario could affect their mobility and, as a result, the overall number of homes that change hands, the study concluded.

Similar scenarios have played out in the past, according to the researchers, who noted that the average monthly rate for a 30-year, fixed-rate mortgage rose from 10.1 percent in November 1978 to 17.8 percent in November 1981. An earlier study of that period found that every 2 percentage-point increase in rates lowered household mobility by 15 percent.

Generally, lower rates are seen as good things for homebuyers as it gives them more purchasing power. However, if rates then go back up, having a lower interest rate may not help in the step up to the next more expensive house. It will take some time for the market to balance out. Although it is unlikely there will be such a swing like in the late 1970s/early 1980s, the housing market is still quite delicate in many places and even small changes could lead to bigger disruptions.

All that said, higher rates of mobility are assumed in the United States. In order to have a thriving economy, workers need to be able to move to where they can find economic opportunities and moving up the ladder of houses (starter home, family home, retirement home, etc.) keeps the housing industry going.

New buyers looking for luxury amenities rather than giant homes still focused on consumption?

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More home buyers today may be choosing amenities over big houses:

Oversized McMansions are history. Instead of big houses with rooms that might seldom — if ever — be used, builders are offering luxury amenities that add to comfort and enjoyment for years to come.

How about a Woman Cave? Other innovations include separate suites for in-laws or “boomerang” children who return home for a time after college or maybe a divorce, luxury walk-in closets and gourmet kitchens that make even a microwave dinner feel special.

“Two things sell homes — baths and kitchens,” said Peder Jensen, director of sales for Nashville’s Jones Co., which recently introduced the Woman Cave…

In addition to lots of granite, Dock Street offers kitchens with double ovens and gas cooktops. Master closets have a California Closet organizer.

“It’s sexy to have a nice master closet,” said Dan Kingsbury, project manager and principal broker at Tollgate Village. “It adds a ‘wow’ factor.”…

“Years ago it was all about square footage. The more the better. Now people want to downsize but upgrade,” he said.

Critics of McMansions have argued for years that the homes are more about being impressive rather than being useful. Additionally, McMansions have been viewed as symbols of excessive consumption. Yet, do these smaller homes with upgraded amenities really get away from this? While the amenities might be more understated and more functional, these amenities are likely not cheap and builders and developers can boost their profits on all sorts of upgrades. In the end, aren’t both the McMansions and upgraded amenities still about consumption, whether it is directed at visitors and possible buyers versus turned in on the homeowners themselves?

Argument: “Why more McMansions are bad news for first-time home buyers”

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McMansions may be good for builders but not so much for people looking to purchase their first house:

Home building has been steadily picking up this past year after taking a sharp nosedive during the recession, although production is still far below historical norms. Orr said home builders are moving forward with cautious optimism, being wary of their pre-recession mistake of overbuilding.

So to help make up for the slowdown, builders are now making homes larger once again. Bigger homes means bigger sales revenue — and for only a minimal bump in construction costs, Orr said.

The trend has been to the detriment of first-time and lower-income buyers, who are finding both the new and existing home markets offer them very few options today.

“They (home builders) have kind of abandoned that sector,” Orr said.

The existing home market nationwide — but particularly in Phoenix — has been facing a chronic shortage of homes for sale, and the problem is most severe in price ranges below $200,000.

Many buyers have thus turned to new construction out of frustration. But given the sharp price hikes of new homes recently, lower-income buyers aren’t finding the same relief, Orr said.

In other words, builders can make more money on the bigger homes for those who still have money to play with. But is this just about builders? I wonder if there are two other things going on here:

1. The article hints at a depressed existing house market, suggesting that there isn’t enough movement in the housing market for these older smaller homes, what might be called “starter homes,” to become available in large numbers.

2. In addition to not much existing inventory opening up, perhaps there simply aren’t enough buyers for smaller houses for builders to take notice. What numbers are we talking about – how many first-time home buyers in the Phoenix are not able to find a home they want? This reminds me of recent data from the Chicago area: while housing starts may be up a large percent, the housing market is still not operating at normal.

That all said, if people want to get into purchasing a home can’t do so or are delayed, this could contribute to more long-term problems for the US housing market.

McMansion owners want “a front and rear entrance, a dining room, and a recreation room”

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According to this description of McMansions, they offer suburban homeowners the basics:

When Sandy and Chris Ross were in Portland, Ore., they lived in a house built for those who buy large suburban dwellings.

“Our house was a McMansion, designed for most people who want a front and rear entrance, a dining room, and a recreation room,” says Chris Ross, a software engineer.

But the Rosses are not most people.

When they moved to Bryn Mawr, they wanted a house built to accommodate their family’s special needs, limited finances, and environmental awareness.

The main contrast developed here is between a McMansion and a custom-built home designed by an architect. McMansions provide the basics of a suburban home: a front and back door, some basic rooms, and plenty of space for living. In contrast, the home designed by an architect allowed the couple to have a kitchen that met their needs, a house that highlighted a notable Japanese maple in the front yard, and a good insulation and design that helps keep utility costs low.

Perhaps the bigger issue here is that most suburban homes are not built by architects nor are they really customized for their buyers. The article seems to suggest the custom home is desirable but a majority of homebuyers choose not to go this route. This particular story does not say how much this custom home cost. Additionally, a custom design might take longer and many homeowners may not feel equipped to help put together or desire a more customized home. Yet, a custom-designed home could allow more homeowners to really say their home reflects them.

McMansions, housing markets, and the influence of banks

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An Australian architect argues homes should be valued on newer tastes rather than older interests in McMansions:

Recent sales and development figures have highlighted a trend towards smaller living spaces but the system for valuations in the capital seems biased towards larger average quality homes, Canberran architect Allan Spira said…

Mr Spira said building smaller, more affordable and sustainable homes will only be an option for “cashed up clients” unless the current system of valuations is changed.

“It’s time for the banks and their valuers to stop basing their assessments on the ‘McMansions’ of the past and start acknowledging the way of the future – smaller, smarter, better fitted out homes,” he said…

Mr Spira said most recently his clients struggled to get a $300,000 loan to build their three bedroom home in Wright.

Built across 127 square metres, he said it was “probably the most affordable and sustainable home in the suburb” but valuers CBRE based their calculations on inappropriate figures as no previous sales figures existed in Molonglo.

It might be hard to make a larger argument based on two cases. But, this argument does raise some larger issues:

1. Just when exactly do bankers and others know when the housing market has turned? In this case, the architect suggests people now want smaller homes compared to the McMansions they wanted a few years ago. It is easier to see change over the course of several years or a decade but it is harder to see this in the short run.

2. How much do banks and their choices about mortgages influence house purchasing and building patterns? Banks were partly blamed for the housing meltdown in the late 2000s but what percentage of blame do they deserve? I haven’t seen someone parse out the particular effect banking and mortgage choices have on what homebuyers are willing to do. This architect suggests homes aren’t being built because banks won’t provide financing for them but it is not clear how often this really happens.

In buyer’s market, some skipping the starter home and buying the big home first

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With lower mortgage rates and housing prices, some young buyers are buying the big home as their first home:

Real estate agents say more twentysomething, childless buyers are snapping up sprawling homes instead of starting out small. It’s a trend that’s gaining momentum as young buyers seize on some of the best housing deals in history. While the shift is unlikely to kick-start construction of new subdivisions filled with McMansions, it’s helping to revive sales of midpriced and upper-bracket houses. The Simonses, for instance, initially planned to spend about $200,000 on a townhouse, but ended up spending tens of thousands more once they started shopping…

Clearly, most first-timers don’t have the financial muscle to buy their dream house, but with rents on the rise, the Simonses and other young buyers face stiff competition from investors who can pay cash for inexpensive properties they can use for rentals. During August, the inventory of houses priced at less than $140,000 fell 40 percent, while those priced at more than $300,000 fell half as much, according to the Minneapolis Area Association of Realtors…

This shift to larger homes runs counter to buying trends in recent years that showed higher demand for smaller houses. When the recession hit, many builders decreased square footage and touted their homes as more efficient and economical for buyers.

But Walter Maloney, spokesman for the National Association of Realtors, said many of today’s buyers are realizing that it could take many years to gain enough equity to trade up to a costlier house, so many are planning to stay longer. Last year, the typical buyer expected to be in their house 15 years compared with 10 years in 2010, he said.

So is this a good decision or not? As we are still trying to recover from a housing crash, it may be easier to now buy a larger house. However, these purchases echo two ideas that are often credited for getting us into this housing situation in the first place: people spending more money on houses than they should (even if they are more “affordable”) and people buying unnecessarily large houses. Indeed, there are some who would argue these two things should be avoided even in the best of times.

The last part of the quote above is also interesting: are we settling into a period where Americans are expecting to be less mobile? Some data from recent years suggests the recession has slowed mobility but people are making certain decisions now as well as developing mindsets that could change mobility for years to come.

The rules for buying a home, seven years ago

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Here is one writer’s take on the rules for buying a home circa 2005:

The old-school home-buying rules (well, not your granny’s old school, more like 7 years ago old school) told us:
A. To buy as much home as we could afford, ahem, qualify for, with as little money down as possible.
B. To buy the biggest McMansion in the neighborhood so everyone would know we “made it.”…
C. We’d always make money, because homes “always appreciated.”

While I haven’t seen rules like these formally written down, I suspect many observers would agree that these rules were commonly followed (if not formally written) and helped lead to the current economic crisis. However, I wonder how many people actually followed these rules. In other words, what percentage of mortgages actually qualified as A? How many people actually bought their homes for the primary reason to show people they “made it”? What percentage of homes lost money between 2005 and 2012? Since I suspect 100% of home purchases did not meet these criteria, how much does the common narrative fit what actually happened?