Tag Archives: homebuyers

Recent uptick in sales of McMansions?

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Here is an argument that new home sales of recent months might be driven in part by larger homes, sometimes known as McMansions:

Data released on Wednesday shows that sales of newly built homes rose 3.3% in April from a month prior and 9.9% from a year ago. While the figures do not disclose the size of these new homes, home builders credited the McMansion side of the spectrum. That’s a reversal from recent trends: During the recession the size of homes got smaller, shrinking 3.4% to 2,382 square feet, according to the US Census. But last year that size jumped 5.2% to 2,505 – the largest in at least four years. In many regions of the country, homes are even larger.

Home builders say the trend toward larger new homes picked up more this year. Michael Villane, president of Lead Dog Builders, a custom home builder in Rumson, N.J., says he’s currently building homes with sticker prices of $1.5 to $4 million, up from the $1.3  to $1.5 million his clients were commissioning a year ago. While the average size of homes in the region is 3,500 to 5,500 square feet, he says the orders he’s received this year are for 7,000 plus-square feet homes. Though there’s no official definition of the word, many define McMansions as new homes larger than 3,000 square feet.

In some cases, home builders are enlarging homes even if clients don’t ask for it. Michael Dubb, CEO and president of The Beechwood Organization, a New York-based home building company, says his firm is building houses with larger kitchens, higher ceilings, and overall more spacious rooms in an attempt to appeal to buyers who might be on the fence about buying a new home. By building bigger without raising the price, he says, the company is hoping to increase its sales. (He says they’re not downgrading quality, but rather cutting into their profits in order to make more sales.)…

Requests for large new homes come at a challenging time for the overall new home market. New home sales hit a 51-year low of 307,000 last year, according to the NAHB. That figure is expected to jump 18% this year, but it would still be way off its peak of 1.3 million homes in 2005.

If I had to guess at what is behind this, here is what I would say: there is a bifurcation in the current housing market. On one hand, you have a large group of potential homebuyers who are looking for smaller homes. One recent book I reviewed calls this the “demographic inversion” as young adults and retiring Baby Boomers look to downsize and purchase in denser areas. Proponents of these trends argue that the Americans of the future are looking for a different kind of homeowning experience in the future. On the other hand, you still have a decent number of wealthy homebuyers who are now moving out of a hibernation stage brought on the economic/housing crisis several years ago. They are looking to buy homes similar to what they would have bought ten years ago but now feel financially stable enough to pursue this.

The article doesn’t mention this but I wonder if this is also at play: new home sales are at the lowest stage in 51 years so this new push for larger homes among the wealthy is really raising the average in a way that we haven’t seen in the past. When those at the lower economic spectrum get back into buying homes (though some would argue that they won’t – perhaps we’re moving to a rental society), the average figures for the whole country might come down or stabilize a bit.

McMansions are so big you need staging to define the rooms for potential buyers

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A New York firm talks about why staging is needed in McMansions:

Staging is a concept that started on the West Coast, and was virtually unknown when Guest and Kramer started introducing it to real estate brokers 12 years ago.

“The advantage is huge,” says Guest. “People walk in to these McMansions. There are so many rooms they don’t know which one is used for what. Is this the family room? Parlor? Great room? We define it. It lets them see that they could live there.”

“We would try to explain to the real estate brokers,” says Kramer, “giving them figures and excerpts from articles in San Francisco and London. It was a difficult idea to sell to a seller.”…

But since then, times have changed. From the real estate boom to the recession that followed, house staging has continued to grow.

“The worst year for everyone was out best year ever,” says Kramer. She acknowledges that perhaps, as it gets harder to sell a house, people are willing to put a little more effort into the process. In addition, people have gotten more involved in the process.

McMansions are so large that people don’t know what to do with the space! Why not get prospective homebuyers maps or at least architectural plans in order to make it through the house! On one hand, this seems to reinforce some stereotypes about McMansions: they have a lot of unnecessary space and Americans, for some reason, really like to have that kind of space. I can imagine Sarah Susanka would have a good time talking about why people should go with smaller homes rather than have to have their spaces defined for them.

On the other hand, staging seems to be pretty common today across housing types. It can be difficult for homebuyers to envision what a space can become without a little help. What does it cost to stage the typical McMansion (let’s say between 3,500 and 6,000 square feet) these days? And what staging touches in McMansions work the best for selling the house?

The role of emotions in buying a McMansion

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“Financial journalist and author” Jean Chatzky discusses her rules about money and hints that buying a McMansion and working with money in general is complicated by emotions:

Have money rules changed with the recession?

I don’t know that the money rules have changed, but I think the recession has made people realize the importance of some of the money rules. For example, Money Rule #26 is “Just because someone will lend it to you, doesn’t mean you should borrow it.” I think it’s the lesson of the housing crisis. We over-borrowed. We took out bigger mortgages than we could truly afford because the banks were willing to give it to us. Every unfurnished McMansion proves that point. For everybody who’s ever felt house-poor or student-loan poor or credit-card poor, the recession has hammered that home.

Why do people tend to overcomplicate money?

It’s really emotional. If I had a bottle of champagne and I opened it with a group of friends, there would be this feeling that we should divvy it up fairly. But if I said, “I have some extra money,” people start making value judgments. There’s morality involved with how we divvy up the money.

Combined with that is the fact that we’re not taught about money as kids or in the schools. There’s not room for it in the curriculum. Getting financial literacy into every school in the country is a very important thing to do, but it’s an uphill battle. The combination of those two things makes many of us feel insecure when it comes to making the right decisions about our money, whether we’re spending it, saving it, or investing it.

Her rules seem meant to limit the emotional side of money. If you have rules to follow, you can sidestep the emotional aspects. While the rules may be helpful, this is a good reminder that economic activity is often emotional. We often talk as if humans make decisions purely for economic reasons when the real story is much more complicated. Stock trading and investing in stocks, purchasing consumer goods, and saving money are laden with emotions.

So what emotions lead to purchasing a McMansion? I haven’t seen an academic study that addresses this. However, critics of McMansions have made a number of arguments about why people buy McMansions: they want to impress other people, they have little sense of style or design, they have money to burn, they don’t realize they can get by with less space, they are unaware of how others might negatively view their home, and they are obsessed with getting a deal without thinking about quality. Critics generally argue that McMansions are attempts at displaying a particular status to others and this causes the buyer to overlook some concerns to which they should pay attention.

I’m guessing that McMansion purchasers wouldn’t give the reasons that critics suggest. At the same time, purchasing a home, usually the biggest purchase of someone’s life, is full of emotions. Buying a dwelling is one thing but when you add up a mortgage plus the idealization of a home in the American Dream and it becomes much more than that.

Home buyers looking for McMansion features

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I’ve highlighted the trend toward granite countertops and stainless steel appliances and here is some more evidence of home buyers looking for McMansion features, this time in the Philadelphia area:

Two couples I know are trying to sell city houses they have owned for more than three decades. The houses are historic, and conventional wisdom when they bought them as shells was to restore them without compromising their architectural integrity.

They bought them when they were young, raised their families in them, and now they are ready to move on.

One couple have had their house on the market since April. One of the owners told me prospective buyers seem to want marble bathrooms and gourmet kitchens, which are more suburban McMansion phenomena than urban trends.

“They can go to the home center and get those things,” she said, blaming TV reality shows for the attitude.

Today’s numbers reflect an impasse: Few people are buying, and those who do are paying bottom dollar; most sellers aren’t willing to take less.

Buyers want the best features but want the cheaper price while home sellers have to wrestle with not spending too much money to update in a down market when housing values have dropped.

Can we solely blame TV reality shows for this phenomenon? Here are three other reasons this might be happening:

1. Tastes have gone up and people expect better features in their home. This isn’t just from reality TV: advertising plays a role (similar pitches from the 1950s to today) as do reference groups.

2. More than in the past, home owners don’t have the home repair skills or will to do these repairs. Therefore, they want the sellers to have done this work for them and then don’t want to have to deal with it for a while.

3. It is a buyer’s market and so buyers tend to ask for everything. Many home sellers don’t have much leverage.

Places that might be deserted due to a lack of homebuyers

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The issue (amongst many) in the ongoing economic malaise is a lack of homebuyers. To have a hot housing market, such as happened in much of the 1990s and some of the 2000s, you need both sellers and buyers. What happens if this temporary trend of a lack of buyers turns into something less than temporary?

One suggestion is that certain areas will be deserted:

Many economists argue that the housing market may take four or five years to recover. Even if that’s proven to be true, the all-time highs of 2006 may never be reached again.

The devastation in some regions will never be repaired. Parts of Oregon, Georgia and Arizona have become progressively more deserted. Since jobless rates may never recover, there is little reason to hope that the populations in these areas will ever rebound. Some homes will be torn down in these pockets of high foreclosures in the hopes that reducing supplies will boost prices. Whether that idea will work in hard-hit areas such as Flint, Mich., and Yuma, Ariz., remains to be seen.

If this comes to pass, this would be an interesting period in American history. Yes, we do have some instances of population loss: the “ghost towns” of the Old West come to mind as people poured into a region and then seemed to leave just as suddenly. Rust Belt cities like Detroit and Buffalo and Pittsburgh have been experiencing a slow but steady population drain over the last few decades. And I have tried to find evidence of “lost suburbs” – places that would go against the typical narrative of American suburbs continuing to grow in population and sprawl further out from cities.

But this prediction suggests that certain metropolitan regions might not have any hope of recovery. While some of these are Rust Belt places that already had issues (like Flint), others are newer, particularly locations Nevada, Arizona, and California. As a matter of public policy, what should be done? Should we prop up locations with government aid? Should we write certain areas off and let them slowly lose population until the critical population mass is gone? Is contraction worthwhile (something that has been debated now for several years regarding Detroit) or is simply losing a city or region a better option?

In the long run, the only possible solution seems to be to convince people that these areas are desirable places to live. One selling point, and this seems to come up a lot on the front page of Yahoo, is that these places have affordable housing. This may be the case but that won’t be enough to attract people – these areas need jobs, economic engines that will bring stability and profits to hard-hit regions. And which companies might be willing to step up?

Interestingly, Illinois ranks #5 on this list. It looks like this analysis says the main factors are a limited population growth and a severe loss in manufacturing jobs over the recent decades. Certain areas of the Chicago region seem more immune to this than others. DuPage County is populous and wealthy, partly due to the influx of higher-end, technology-related jobs that have entered the county since the 1960s. Because of this, DuPage County has an unemployment rate always multiple points below the national average.