Tag Archives: housing market

Some wealthy US zip codes don’t have enough mansions to sell

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This may be related to a supposed McMansion comeback: some wealthy US communities have a limited inventory of big homes available for purchase.

While housing inventory is falling throughout the country, it’s falling especially fast in some of the country’s richest ZIP codes. A study from Altos Research, the Mountain View, Ca., real-estate research firm, found that inventory in the nation’s 90 wealthiest ZIP codes fell 15 percent over the past year, slightly faster than the broader market.

But in the richest ZIP codes, inventory is down more than 50 percent. In a ZIP code in Carmel, Calif., inventory fell 76 percent over the past year. There were only four homes left on the market priced at $1 million or more as of the end of May, according to Altos.

In Palm Beach, Fla., the number of $1 million-plus homes has plunged by 70 percent, falling from 89 to 26. And in the Old Greenwich, Conn. ZIP code, there are only 10 homes left priced at $1 million or more, down 58 percent, according to Altos.

“I don’t recall seeing the market like this, and it’s come so quickly,” said Cristina Condon of Sotheby’s International Real Estate in Palm Beach. She said buyers have poured into the market in recent months, many from overseas. American buyers are also piling in—some from higher-tax states like California, lured by low taxes and still-low prices in Florida.

The phrase “mansion shortage” sounds funny. It may be true in a business supply and demand sense but shortage is a term often reserved for more essential commodities, not luxurious homes.

This is more evidence that there is a bifurcated housing market: the wealthy, whether Americans or residents of other countries, seem to be doing fine with their real estate.

Assessing “The Return of McMansions” in the NYT

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Following up on the same data behind the CNN story on the McMansion comeback, the NYT looks more closely at the characteristics of new houses in 2012. Here is my summary:

-Housing starts were still down in 2012. Looking at the graph with housing start data since 1973 shows that the last few years have been quite different.

-The homes built in 2012 were bigger: the highest median square footage ever of 2,306 square feet, 41% of the houses were four or more bedrooms (a new record), and 30% of new houses had 3 or more bathrooms (also a new record).

My thoughts on this data:

1. This is not a big surprise. While housing starts are way down, wealthier Americans and others have still been able to buy large new homes. Again, Toll Brothers is doing just fine. On the other hand, the lower ends of the housing market are not doing well.

2. It is interesting again for people to pick up on the highest-ever median square footage for new houses. For years, journalists and others have looked at the average square footage which is bit down from its high several years ago. Perhaps the median is now alluring because it is at its highest point and therefore can be linked to McMansions and American excess?

3. More houses have more bedrooms and yet the average family size in the United States has decreased in recent decades and more Americans are now living alone. So what are these bedrooms being used for?

 

CNN says “McMansions are making a comeback” but the data is limited

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CNN reports that McMansions just may be on the way back:

During the past three years, the average size of new homes has grown significantly, according to a Census Bureau report released Monday. In 2012, the median home in the U.S. hit an all-time record of 2,306 square feet, up 8% from 2009.

During the recession, Americans downsized and the average new home shrunk in size by 6% over two years to 2,135 square feet. At the time, many industry experts said the days of the McMansion were over.

The shrinkage was supposed to indicate that a new era had begun, with young buyers seeking to live closer to urban cores and settling for smaller places and baby boomers downsizing after their kids had flown the nest.

But it wasn’t that consumers wanted less space, many just couldn’t afford more, said Jeffry Roos, a regional president for home builder Lennar. And now that the economy is improving, they’re demanding bigger homes again, he said.

This is what I suspected might happen: once the housing market picked up again, some Americans would go back to buying bigger houses. But, this article has a few problems as it relies on (1) the median home size and (2) talking to several large builders.

Regarding home size: the figures cited more often is the average home size. The average size for new houses went from roughly 900 square feet in 1950 to nearly 2,500 in the mid-2000s. The median home size might be more accurate as the extra big homes can’t skew the data as much but the average is used more often. Also, the median hasn’t changed all that much in the last few years – this is only a difference of 150 square feet, a 12×12 room. Why can’t we see figure about the number of big homes that have or have not been built rather than relying on these overall figures that are a snapshot of a varied housing industry?

Relying on just a few large builders also does not reveal the big picture. The builders cited, particularly Toll Brothers, are big players but the housing market has a lot of different builders and developers. Overall, how are lots of different builders feeling about big houses? Are they actually building these bigger houses? What do real estate experts say? The news for Toll Brothers has looked good recently but there is more to the big house market than just Toll Brothers.

This seems like an article that would benefit from better data and also may not really be able to be written until some more time has passed and the trend is more clear. In the meantime, simply invoking the term McMansion and discussing a possible trend is apparently enough…

UPDATE 6/5/13: As the CNN story is repeated across the web, there is some confusion. For example, look at how this retelling mixes the idea of an average or median:

A new Census Bureau report says the average size of a new home has grown eight percent in the last three years, up to a record 2,300 sq. ft. in 2012…

According to the National Association of Homebuilders, buyers prefer a median home size of just over 2,200 feet, in line with the Census average.

Two different figures for the “middle” size mean two different things…

Exposing Americans to passive houses

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A Chicago Tribune article suggests more Americans would like passive houses if they knew about them:

The idea of passive house design isn’t new. It was first promoted in the early 1990s…

Torres Moskovitz estimates there may be 40,000 certified passive house buildings in the world, but probably fewer than 50 projects in the United States…

The stringent passive house — or Passivhaus — standards and the Passive House Planning Package software were developed by the Passive House Institute in Germany. The U.S.-based Passive House Institute is currently formulating its own standards. The PHPP software incorporates a designer’s calculations and helps design a passive house.

A passive house saves up to 90 percent of space heating costs and 75 percent of overall energy costs, though some European studies indicate the numbers may be even higher…

“People learning about it are so into it, maybe it becomes a bottoms-up approach, comes from the public and then the government has to react to our demand,” Torres Moskovitz says. “There’s definitely interest in the building community, but it has a way to go before everyone understands.”

I think a lot of Americans would be very interested in the cost savings of passive houses. But, they would want to know: if I pay more upfront for such a home, what is the payoff in reduced utility costs down the road? Even if there are significant savings, I imagine these houses are going to be part of a niche market for a long time as more people learn about them and builders learn to see them as profitable options. Perhaps passive houses need some sort of public relations push like a recent initiative regarding public housing?

Housing recovery more than just the McMansions of Toll Brothers?

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One analyst suggests the housing recovery in recent months is more than just an uptick in McMansions and big homes:

The housing market appears to have recovered from the depth of its decline. Toll Brothers (TOL) reported a whopping 46% jump in its latest earnings report and Home Depot’s (HD) earnings soared 18%. Today the National Association of Realtors reported that April existing home sales surged to their highest level in more than three years…

Michael Santoli, senior columnist for Yahoo! Finance, says the housing recovery seems to have a new leg based on a scarcity of supply coupled with low interest rates and growing demand.

“This can feed on itself for a while,” says Santoli, “not just with regard to Toll Brothers, which makes higher end McMansion-type houses, but across the industry.”

Santoli says not to expect a steep rise in prices from here despite a “bottleneck of demand.” And don’t expect all housing-related stocks to surge.

It would be helpful to see more exact housing figures at different levels of the market. Big homes seem to be doing okay as evidenced by the strength of Toll Brothers. But, the lower ends of the market don’t seem to be recovering as much as underwater mortgages lead to limited supply and hold the housing market back. When the housing market is truly recovering, shouldn’t a broad swath of Americans benefit? Or, are we seeing a fundamental shift in American housing where middle and lower-class residents have continuing difficulty in purchasing homes?

Underwater mortgages slow housing recovery in Chicago area

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Crain’s Chicago Business highlights an issue that is slowing the real estate market in the Chicago area: homeowners with underwater mortgages.

More than 506,000 Chicago-area homes—or one-third of the market—were underwater as of the fourth quarter, according to California research firm CoreLogic Inc. That’s up 7.6 percent from the previous year.

Underwater properties are bogging down a residential market that’s clawing back from its post-crash ditch. By opting to stay put, these homeowners are removing a substantial portion of potential saleable properties from the market, limiting choices for those who are ready to buy…

Rising prices ultimately will push more underwater homeowners to sell, Mr. Humphries says, but it’ll be a while before prices get anywhere near the levels seen in the market apex of just a few years ago. The S&P/Case-Shiller index of single-family homes, a closely watched barometer of values, in February stood 34 percent beneath its September 2006 zenith.

For buyers, meanwhile, the process of finding and closing on a home has become a scrum—and it’s likely to stay that way for a while. This spring, showings are drawing crowds and bidding wars, and fast sales are common, buyers and brokers say.

I wonder how much of this is tied to the psychology that people feel losses, such as the value they may have lost in their house’s value, more than equal gains. What tactics could be used to convince people that they might be better off getting out of the mortgage? I’ve seen one such argument: the value loss on a smaller house is likely to be less in absolute dollars and then homebuyers could benefit from larger drops in prices for larger houses.

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.

Chicago area housing starts up 37%; still one-fifth of “normal”

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The good news: Chicago area housing starts are up. The bad news: housing starts had slowed so much in recent years that this is nowhere near “normal.”

Housing starts in the first quarter in the Chicago area rose 37 percent, which puts the local housing market on track to build 4,000 homes this year, the best performance in three years, according to Metrostudy, a housing research and consulting firm.

Still, a normal number for new-home starts in the Chicago area is 18,000 to 20,000. “We’re one-fifth of that. We’re a long way from being normal,” said Chris Huecksteadt, director of Metrostudy’s Midwest markets…

A lack of quality inventory and bidding wars among resale homes have caused some consumers to change their focus and consider buying newly constructed homes. Several local builders report that they’ve started homes as spec or model homes and the properties have gone under contract before the drywall is up…

Because of that kind of demand, as well as a recent spike in lumber prices, some local firms are raising prices by $5,000 to $20,000 per home to help offset the cost of materials and to maintain or improve their profit margins. No one is getting too aggressive with price hikes, though, because it might lead to problems with appraisals and mortgage financing.

This may be the new normal for quite a while. As the end of the article notes, it may be difficult to generate consistent demand until there are more jobs.

When I see figures like this, I always think about the existing housing stock. Does this automatically mean that the available number of houses is really low? Or, is there a growing interest in recent years among buyers to forgo the problems existing houses may have and instead pay a little more to get a spot-free home? If some of the existing housing stock is going unpurchased, what then happens to those homes? Some people may not be able to move while other houses, particularly those in more disrepair and neglect, could become a drag on some neighborhoods.

US homeownership rate drops to 65%

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The homeownership rate in the United States dropped in the last quarter to its lowest level since 1995:

The Census Bureau reported Tuesday that the nation’s homeownership rate slipped to 65 percent in the three months that ended in March, a decline from 65.4 percent posted in both the first and last quarters of 2012.

This suggests the housing market is still having a lot of trouble.

Here is the complete 12 page press release from the Census. Some interesting extra info:

-Homeownership rate 1Q 2013 by age: Under 35 36.8%; 35-44 60.1%; 45-54 71.3%; 55-64 77.0%; 65 and over 80.4%.

-Homeownership rate 1Q 2013 by race/ethnicity: Non-Hispanic White alone 73.4%; Black alone 43.1%; All other races 54.6%; Hispanic (of any race) 45.3%.

Here is a table of homeownership rates each decade since 1900 – the biggest jump seems to be from 1940 to 1960, coming out of the Great Depression and then into the era of mass suburbanization.

 

 

The booming housing market: Washington D.C.

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Washington D.C. may be growing in influence and its housing prices are certainly growing – they just reached a record high.

The median price of a home in the District reached its highest point in history last month, according to the latest data from RealEstate Business Intelligence, a subsidiary of MRIS.

D.C.’s median sale price soared to $460,000 from $405,000 in February, an increase of 13.6 percent month over month. For the entire metro area, the growth was more modest. The median sale price for the region rose 8 percent, to $372,500 in March from $345,000 in February.

Falls Church boasted the largest median price in the area last month and the biggest percentage uptick year over year. The median sale price for homes in Falls Church climbed to $631,000 in March, a 37.7 percent increase. However, there were only 16 sales in Falls Church in March, which likely skewed the numbers…

While this is good news for sellers, it is not as good for buyers who are combatting not only rising home prices but also depleted inventory. The number of homes for sale in the region continues to hover at historic lows. The 6,289 active listings in March were down 4,200 from the same month a year ago and have dropped nearly 20,000 since their peak in the fall of 2007.

A couple of thoughts:

1. This seems to reinforce the figures that suggest the Washington D.C. area is doing quite well. Housing prices are up, the population is growing, the region now has some of the wealthiest counties in the United States…this is a contrast to the fate of many Rustbelt locations as well as some Sunbelt communities that are still recovering from the real estate bust of recent years.

2. This will feed into ongoing conversations about the expansion of the Washington D.C. region and sprawl. In recent decades, there have been a number of discussions and fights about sprawl in Maryland and Virginia and with these housing prices and housing demand, there will be plenty of people who want more new homes.