Tag Archives: housing market

Teardowns McMansions responsible for the big American homes of today?

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A story about a family who has downsized links teardown McMansions to the big American homes of today:

At a time when smaller, older homes are routinely torn down to build sprawling new “McMansions” — the median American home size has soared 250 percent from 1,000 square feet in 1950 to 2,500 in 2008 — Lindsay and Sue took the opposite approach when they remodeled their 1920 Arts and Crafts style bungalow in 2011. They actually lost square footage, about 40 square feet.

Just how indicative are teardowns of bigger American homes? They can be viewed as a symptom of longer and larger trends, particularly when looking back to 1950. Over the course of 60 years, the average new American home expanded by a factor of 2.5. This is significant as it led Americans to have the largest average new homes in the world. And all of this has happened as the average American household shrunk – perhaps suggesting Americans like even more space and more stuff in that space. Across the board, Americans now consume more than their counterparts in the 1950s – and this includes houses.

But, there might be some merit to linking teardowns to a larger average house size. Teardowns are still relatively rare. They occur most frequently in wealthier or gentrifying neighborhoods where there is money to spend on buying a home, destroying it, and constructing a whole new home. Yet, the average new house size might continue to be pulled up by the luxury housing market that may not have been hit as hard during the economic crisis. Look at the distributions of new homes by square feet from 1999 to 2012: 34% of new American homes in 1999 were over 2,400 square feet (17% over 3,000) compared to 45% over 2,400 square feet in 2012 (26% over 3,000).

On one hand, McMansions are often the whipping boys of the early 21st century American consumer culture. On the other hand, their presence may have helped keep the average new house size high even as the lower end of the housing market has had more difficulty recovering.

LA’s modernist homes threatened by hot housing market and McMansions

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The modernist homes Los Angeles are in danger of being replaced by McMansions and other big homes:

The Backus House still hovers on the same Bel Air hillside where Grossman built it. But because of the sprawling megamansions that have sprung up around the property, and because of the increasingly overheated state of the Southern California real estate market, Grossman’s elegant modernist creation—one of the few surviving examples of residential architecture by a groundbreaking woman now ranked among the finest designers of her era—may not survive much longer.

There’s an irony here. Starting in the 1920s, the combination of climate, terrain, and a young, progressive community of (largely European) architects and clients triggered an efflorescence of modern residential design in Los Angeles that culminated in the famous Case Study House Program (1945–66)—a series of experimental model homes sponsored by the local magazine Arts & Architecture and designed by some of the period’s greatest architects. The modern single-family dwelling may have been invented in Europe, at the Bauhaus and elsewhere, but many believe it was perfected in Southern California…

But a certain kind of modernist property—namely, a lesser-known house situated on a prime lot in an expensive neighborhood—is still at risk, and may be especially imperiled in Los Angeles’s current residential market, which has posted the nation’s largest increase in average sale price (20.7 percent) over the last year. “An economic downturn is always a good thing for preservation,” says Regina O’Brien, chairperson of the Modern Committee of the Los Angeles Conservancy. “A lot fewer developers are making a lot less money, and therefore they have a lot less motivation to pursue these profit-oriented flips. But the problem is that the opposite is true when the market picks back up.”…

“Most modernist homes are considered very modest by the standards of these neighborhoods, where people want far more house than they need,” says Nate Cole of Unique California Property, a Long Beach brokerage specializing in modernist architecture. “Buyers see anything that they deem a compromise, and out come the bulldozers.”

There are several issues at work:

1. It sounds like there are questions about individual property rights versus community-wide preservation efforts. Should property owners be able to cash in during a good housing market? This is a common issue across all sorts of communities debating teardowns and historic preservation.

2. These modernist homes are part of southern California’s image. Elsewhere, modernist homes might elicit more negative reactions but they are part of LA’s coming of age narrative. Part of the argument here is that the replacement homes don’t really add much to LA’s character.

3. Who exactly is supposed to pay to preserve these houses? As if often the case with preserving homes, supporters of the modernist homes are hoping for buyers who want to preserve and fix-up the homes. But, if those people don’t come, it is less clear what might be done.

4. The irony: a down real estate market is good for historic preservation. Not only might the old buildings survive, it might be easier for those interested in preservation to purchase the homes. But, who would wish for leaner economic times simply in order to preserve buildings? All of this suggests historic preservation might be partly about timing and having the opportunity to purchase property that might not be as marketable.

Cost, adapting to different climates big obstacles to building passive houses in the US

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The New York Times explains passive houses and also describes several obstacles to building more of them:

Proponents of passive building argue that the additional cost (which is estimated at 5 to 20 percent) will come down once construction reaches critical mass and more American manufacturers are on board. And there are a few signs that day may be coming. More than 1,000 architects, builders and consultants have received passive-house training in this country; at least 60 houses or multifamily projects are in the works; and Marvin Windows, a mainstream manufacturer based in Minnesota, recently began making windows that meet passive certification standards…

“What I’m worried about,” he said, “is that the current halo around the passive-house standard will result in its being incorporated into the building code. That would be unfortunate because they are unnecessarily expensive houses, from $300,000 to $500,000 on average, that cost more than will ever be justified by lifetime energy savings or carbon reductions.”

Mr. Holladay favors a more flexible formula called the Pretty Good House, which promotes modest improvements in insulation coupled with renewable energy from solar panels — an approach, he said, that achieves similar energy savings without the additional expense.

To make things more complicated, no two passive houses are likely to be built to exactly the same specifications. Thousands of variables, including the architectural design, the size of the house, how many people will live there, and longitude and latitude, are taken into consideration by the sophisticated software created by Dr. Feist and his Passivhaus Institute in Darmstadt, Germany…

Figuring out how to make the model work in the hot, humid Southeast is a bigger challenge, something the Europeans have not had to deal with. With this in mind, Ms. Klingenberg’s organization is working to develop American standards, taking into account variations in energy use and leakage rates from one climate zone to another; they are expected to be released this fall.

In other words, these are complicated homes and this gets added to the cost. Like other technological innovations, manufacturing and building at a larger scale could soon help make them more accessible and understandable. Additionally, the context matters as well. If standards like building codes and environmental expectations about new houses change plus consumers display more interest in unique, green homes, there may be more and more passive homes in the coming years.

Sales of $1 million plus homes back to 2007 levels

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A new analysis shows that the upper end of the real estate market, at least homes over $1 million, has recovered:

Home sales from Los Angeles to Charleston, South Carolina that are priced at more than $1 million are gaining at triple the pace of the broader market, according to real estate research firm DataQuick Inc. Wealthy purchasers, helped by gains in equities, are diving into real estate a year after a recovery began in the housing market when less-well-heeled buyers rushed to take advantage of record-low interest rates, said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s Wharton School…

Sales of homes priced at more than $1 million jumped an average 37 percent in 2013’s first half from a year earlier to the highest level since 2007, according to DataQuick. Transactions priced at less than $1 million rose 11 percent in the same period to the highest since 2009, data from the National Association of Realtors show.

The $1-million-and-up end of the market usually trails cycles of the broader market because real estate purchases by wealthier buyers “tend to be discretionary spending” that can wait until economic conditions are right, Wachter said. Those homeowners usually can hang onto properties during tough times, and their houses are big enough for them to stay even if their families expand…

Homes priced at more than $1 million lost about 46 percent of their value during the housing crash, according to a Bloomberg survey of sales in the top four cities, based on valuation data from Zillow.com. Since then, their value has more than doubled. Home prices in the broader market fell to $154,600 in early 2012 and increased to $214,200 in June, according to the Realtor’s group.

At least one part of the market is doing well (the lower end is not doing as well): some expect homeownership rates in the US are expected to fall into next year.

I wonder if another reason these homes are selling at such a rate includes a perception that real estate is a good investment at this point, particularly compared to other investment opportunities that are more uncertain. This would assume that home prices would rise consistently but it would also help explain why so many investors are purchasing real estate.

More Chicago area houses purchased with cash

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In perhaps another sign of the bifurcated housing market, more and more buyers are purchasing Chicago area homes with cash:

Some people actually pay cash to buy a house. In fact, it happens more than you’d probably expect—in the first half of 2013, cash paid for 34 percent of all homes bought in the Chicago area, according to data that RealtyTrac released exclusively to Chicago. For the month of June, cash bought 30 percent of local homes, which was even with the national average in data the company released last week.

Many of those cash buyers were investors, either the big corporate type or the smaller individual type. But real estate agents and others say the number of end-users buying homes for their own use and paying cash has risen steeply this year. (I could not find data that breaks down which cash buyers are end users and which are investors.)

And the reasons this is happening more?

-They want to be the sharpest competitor in a multiple-bid situation. A cash offer is “the cleanest offer,” Whelan says. It assures the seller that the deal won’t fall through for lack of financing, and it typically offers a faster closing because it eliminates the wait for the mortgage process.

-They know that sellers sometimes will accept a lower-priced cash offer over a higher-priced offer that will be financed, to avoid the hassle.

-They may believe that the value of the home they want is above what an appraiser would calculate based on comps from the recent past. Paying cash instead of getting a mortgage leaps over a mortgage lender’s requirement of an appraisal, Kawabata points out.

-Although it’s been easing recently, jumbo loans—mortgages for more than $417,000 in the Chicago area—were difficult to get for the past few years so buyers of higher-priced homes had been lining up cash for the home purchases they wanted to make this year.

In other words, if you have the cash on hand, it can give you a leg up on big real estate purchases. But, this option isn’t available to most people. So, it seems like this helps those with wealth to continue to rack up the wealth through larger and/or more valuable real estate portfolios.

Projection: US homeownership rate to continue to fall

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One firm projects the homeownership rate in the United States will continue to fall through next year:

The homeownership rate in the second quarter was unchanged from the prior three month period, according to Census Bureau data released today. It will hit bottom at about 64 percent in the next year as families leave the foreclosure pipeline and enter rental homes, according to a May analysis by London-based Capital Economics Inc. It’s currently the lowest in almost 18 years after averaging about 64 percent for 30 years through 1995.

First-time buyers and minorities are among the groups that have seen the sharpest declines since the crash. While property ownership among senior citizens was little changed at about 81 percent, the share below age 35 that own a home fell to about 37 percent from almost 42 percent five years earlier.

The rate for blacks reached almost 50 percent in the second quarter of 2004 from about 43 percent in 1995, Census Bureau data show. By the second quarter of this year, it had dropped to 42.9 percent. The rate for whites fell to 73.3 percent in the second quarter, from 76.2 percent in 2004.

The good news: the projection suggests the bottom is about 64 percent. The bad news: there are still plenty of people caught in the foreclosure pipeline. This is a reminder that foreclosures aren’t just about people having to leave their current home; it also gunks up the market far down the road.

See charts of the trends, with the latest 2013 2Q data, here.

Shift from buying big homes to upgrading fixtures

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I’ve suspected this for quite a while: here is some evidence Americans have moved past purchasing large homes, McMansions if you will, and are instead paying more for the finer touches in their homes.

Beginning next month, Majestic Building Products, a longtime wholesale supplier to companies such as Pulte Homes and Marriott International, is opening its showroom to the public.

Owner Jeff Jenkins said he is expanding the Leesburg-based company to keep up with growing demand for more-customized fixtures — ranging from bathroom mirrors to closet shelves.

“The whole philosophy has changed,” said Jenkins, who founded the company in 1989. “Ten years ago, everybody was out buying McMansions. People don’t care about having an 8,000-square-foot house anymore. They’re more interested in upgrading the little things.”

Those little things — door hinges, towel holders and shower doors — bring in about $9 million in annual revenue for the company. Jenkins said he expects sales to rise an extra 20 percent in the next year.

This could be viewed as a positive sign by those who decry the purchase of unnecessarily large homes: more Americans are paying attention to the interiors of their homes and making them enjoyable. Instead of focusing on size and its impressiveness and functionality, customizing the fixtures allows owners to focus more on their own personal interests and develop a home that more closely reflects their own tastes. This could be viewed as a shift away from mass-production to owners taking more responsibility and interest in their own settings.

On the other hand, focusing on the fixtures simply transfers the consumption from the larger issue of the home to the innumerable upgrades that could be made within a home. Think granite countertops, stainless steel appliances, hundreds of floor options, faucets, paint colors, and on and on. Plenty of money is still being spent on housing but instead of it going for new homes, it goes into new furnishings. As the article suggests later, the company is opening their showroom in part to help counter the fluctuations of the housing market and ensure a steady revenue stream. Can’t purchase the bigger or newer home you dream about? Instead, put that money into your current setting.

If this is all the case – and there is plenty of evidence that the new housing market is still sluggish – this hints at a possible large shift in American housing. Rather than being driven by housing starts and new development, perhaps the future in a tighter economic market is in premium fixtures and more customization of existing homes to the tastes of their current owners.

Hoping McMansions aren’t making a comeback

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Not everyone is happy with the idea that McMansions may be making a comeback:

Please don’t tell me we’re picking up where we left off. Don’t get me wrong, I’ve got nothing against big houses in particular, but I had hoped we’d seen the end of over-building tiny residential lots to gain spaces far larger than they really needed to be. If there was a silver lining in the housing downturn, I thought it might be a shift toward smaller spaces that put a premium on creativity, great design, and organization.

Thankfully, I don’t think the census data points toward the whole nation deciding, once again, that bigger is better. Instead, I think we’re seeing the results of a very simple economic fact: When the economy is in the tank—which it undoubtedly was a few years ago, when 2012 completions were in the planning, permitting, and construction phases—the only people building houses were the “Go Big or Go Home” crowd whose members probably splurged for the extra bedroom or three. That’s why the census data is now showing a record high median home size. I hope, at least.

See recent posts about a possible return of McMansions: a CNN report in early June 2013 and a New York Times follow-up on the CNN piece.

Tim Layton hints at several complaints against McMansions. First, the homes are simply too big to start with. They have more space than people really need. This is related to the idea that Americans often think “bigger is better” and don’t think about anything else. Instead, Americans could think more about the design of their homes rather than just focusing on more space. This sounds similar to Sarah Susanka’s arguments about her Not-So-Big House.

Additionally, this also gets at trends and cycles in housing. McMansion-type homes emerged in the 1980s with the term exploding in the early 2000s. But, the economic crisis led to smaller homes for several years. The question is what will come next. Layton does not want McMansions to return but he also notes that we may also be in new kind of market where the wealthy continue to purchase such homes while they don’t really extend to the larger housing market. Perhaps there will be a limited McMansion comeback? If so, there may be plenty of opportunity for builders and others to be more creative with smaller homes.

Overview of the move of Toll Brothers into urban development in the last ten years

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Commonly known as builders of McMansions, Toll Brothers has branched out into urban development in the last decade. Here is a description of their efforts in New York City, as told by the head of Toll Brothers City Living:

We did some projects early on in Williamsburg, which I didn’t think would have been ahead of the curve. But for a lot of people who came to our sales office from places like Manhattan felt the neighborhood hadn’t arrived yet.

Based on that experience, we’re really focusing on neighborhoods that are established. When your main focus is condo, the way ours is, it needs to be that way, because you get one chance to sell a project. If everything isn’t perfectly right, then you’re going to suffer for it…

We’re certainly busy, but we’ve been more selective, so we’re on Gramercy, we’re on Park at 89th, we’ve got a tower on Park Avenue South going up, we just did the Touraine at 65th and Lex. Further down the line, we’ve got something on First and 52nd and in Hudson Square, on King Street. The project we’re doing in Brooklyn is in Brooklyn Bridge Park, which is basically in Brooklyn Heights, which was basically the first suburb…

We were fortunate coming out of the real estate recession and having a lot of cash and not needing to borrow, when most lenders were very reluctant to do condo loans. Toll has about a billion in cash and a billion-dollar credit line nationwide. We bought the Touraine site with just cash; we bought the Gramercy site with just cash; we bought a site in Dumbo with just cash. This was in ’09 and ’10. Most of the condo guys were not yet back, and we were competing with the rental guys, and we can always pay more than them.

Three quick thoughts:

1. It is hard to tell whether the image of Toll Brothers is changing. This article is similar to a number of other ones in recent months (example here) discussing the company’s efforts in New York City. At the same time, Toll Brothers is consistently linked to the construction of large suburban houses. In the long run, I wonder if there are critics who will never be able to look past the company’s connections to McMansions and see whatever else they are doing.

2. Few of the articles that discuss the efforts of Toll Brothers in New York City give any numbers about how much of the company’s business is in cities versus suburban development. From the projects described above, I would guess the urban efforts are still just a small part of the total operations.

3. The last paragraph hints at the dynamics of the housing market in recent years. Toll Brothers had the resources to capitalize on the housing market bubble. They aren’t alone but while these flush buyers make more money at the upper-end of the market, the lower end languishes.

Average new US house over 2,500 square feet; average new Chicago area house 2,650 square feet

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Here is an update on the average (not the median) new house size in the United States and in the Chicago region:

As a result, the average new home completed last year was 2,505 square feet. That represents the third annual increase in square feet and puts the average home size on par with where it was in 2008. Average home size peaked in 2007 at 2,521 square feet…

In the Chicago area, the average size of homes being built today is about 2,650 square feet, down from the 2,800 to 3,000 square feet constructed during the housing boom, according to Chris Huecksteadt, director of the Chicago region for Metrostudy, a housing research firm.

The US average is not surprising but it is rarer to see see figures for specific metropolitan regions. The higher than average new housing size in the Chicago area is likely related to the wealth of the metropolitan area but its lack of recovery compared to the national average suggests the region hasn’t bounced back as much as some other regions.