Tag Archives: housing market

“Big-Box Houses” the successors to McMansions?

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Builder has an article about a new kind of home: “big-box houses.”

Even as average new-home sizes have fallen slightly across the country, builders in some markets are finding a profitable and underserved niche of buyers who need or want a house as big as a mansion with the price tag of a cottage. While some buyers are in true need of the space, others, awed by the per-square-foot value of so much elbow room that cheap land and efficient box-like floor plans make possible, can’t resist the buy…

Lennar, for example, recently rolled out its 4,054-square-foot Himalayan model in the Tampa, Fla., market for $270,990. D.R. Horton has The Surrey, a 4,600-square-foot home in Lakeland, Fla., starting at $223,990. M/I Homes is selling the 5,249-square-foot Gran Vista in Orlando starting at $336,460. And KB Home has a 5,211-square-foot model it is selling in Austin, Texas, for $422,950…

Another housing executive says the big-box home trend was born as a way to compete with resales because it is rare to find large homes among resales and foreclosures, making their plus-size a product differentiator. Also, the larger homes can often pass muster with appraisers more easily, because the bigger the house, the smaller the square-foot price, and the higher-priced portions of the home, kitchens and bathrooms, are amortized over a larger number of square feet. The lower price per square foot helps the homes compete with the lower per-square-foot cost of distressed home sales.

Still, the formula of building such homes at a profit is tricky. It requires that land in the right neighborhoods be bought at fire-sale prices and that the home itself be value-engineered for cost efficiencies as well. The box on top of a box model is a less expensive way to build than a single-level house or one with more complicated shapes and roof pitches.

Quick summary: there is still a part of the housing market for big, cheap homes, particularly among those with larger families.

My question would be how these homes differ from McMansions. It seems to be that the big-box homes are budget big homes with no frills. McMansions came to be known for their luxuriousness, whether this was reflected in the large windows in the front, the stone mailbox or wrought iron fence, the stainless steel appliances and granite countertops, or the voluminous great room. These big-box homes are big because their owners want to use all the space, not because they want to impress people. I wonder what this means for the quality of the construction: McMansions were often regarded as being shoddy and the builders quoted in this story admit that these homes have thin profit margins.

Also: the name is intriguing. McMansion came to be a generally negative term. “Big box” is usually used derisively to refer to retailers like Walmart or Home Depot who have huge stores and low prices. Additionally, there are a lot of connotations about big parking lots, environmental concerns, and sprawl. If I were a builder, I wouldn’t want my homes to be known by this term. If this term sticks, will these homes become reviled in the same way as McMansions?

Prediction: housing prices in for a third dip

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According to one firm, the housing market in the United States will get worse soon:

According to Fiserv, a financial analytics company, home values are expected to fall another 3.6% by next June, pushing them to a new low of 35% below the peak reached in early 2006 and marking a triple dip in prices.

Several factors will be working against the housing market in the upcoming months, including an increase in foreclosure activity and sustained high unemployment, explained David Stiff, Fiserv’s chief economist…

The first post-bubble bottom was hit in 2009, when prices fell to 31% below peak. The First-Time Homebuyer Credit helped perk prices up by mid-2010, but by the time the credit expired, prices fell again.

In the second dip, which was reached last winter, prices were down 33% before staging a mild rally that was artificially spurred as banks slowed the processing of foreclosures following the robo-signing scandal, which found that loan servicers were rapidly signing foreclosures without properly vetting them.

This is a long term issue for the country to address and it’s hard to imagine that recent political rhetoric on the matter will help.

What could be particularly interesting in this whole affair is how the drop in values or a slight recovery will differ by region. While we have already experienced this, we could be in for long-term disparities where certain metropolitan regions like Washington D.C. which has risen to the top of rankings of wealth are in stark contrast to older Rust Belt places (like Youngstown) and also newer depressed places (like Las Vegas). One size fits all housing policies are likely not enough to help everyone.

Senate proposal to reward immigrants who would buy $500k in housing

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The down housing market is leading to some interesting ideas including one from two Senators which involves rewarding immigrants who are willing to buy expensive homes:

The reeling housing market has come to this: To shore it up, two Senators are preparing to introduce a bipartisan bill Thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S.

The provision is part of a larger package of immigration measures, co-authored by Sens. Charles Schumer (D., N.Y.) and Mike Lee (R., Utah), designed to spur more foreign investment in the U.S.

Foreigners have accounted for a growing share of home purchases in South Florida, Southern California, Arizona and other hard-hit markets. Chinese and Canadian buyers, among others, are taking advantage not only of big declines in U.S. home prices and reduced competition from Americans but also of favorable foreign exchange rates.

To fuel this demand, the proposed measure would offer visas to any foreigner making a cash investment of at least $500,000 on residential real-estate—a single-family house, condo or townhouse. Applicants can spend the entire amount on one house or spend as little as $250,000 on a residence and invest the rest in other residential real estate, which can be rented out…

International buyers accounted for around $82 billion in U.S. residential real-estate sales for the year ending in March, up from $66 billion during the previous year period, according to data from the National Association of Realtors. Foreign buyers accounted for at least 5.5% of all home sales in Miami and 4.3% of Phoenix home sales during the month of July, according to MDA DataQuick.

This seems like it would be part of a discernible shift in the immigration conversation: primarily letting rich or educated immigrants into the United States.

The real question: does this really help the housing market? What kind of impact are we talking about – a 1% boost, 10% boost? As the article suggests, wealthy foreigners are already buying property in other countries. I’ve highlighted a couple of stories where wealthy Chinese buyers have purchased homes in New Zealand and Vancouver, Canada. When this happens, locals have mixed reactions. Would this proposed policy simply promote more foreign investment or would it push people to actually move to the United States and work here?

Would this bill also only help more wealthy areas, such as big cities or coastal/vacation regions? Would this primarily benefit people with bigger, more expensive homes?

Not just one national housing recovery

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National figures about the housing market give us an idea of what is happening across the United States. But if all real estate is local, it might be worthwhile to remember that the housing recovery may or may not be happening at different rates in different regions.

It would be interesting to hear housing experts talk about what this means for attempted national policies regarding housing. Would national policies take care of what needs to be done in Fresno, California and also Detroit, Michigan?

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.

Lenders pursue options for foreclosures: bulldoze them, donate them…

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While some people may be interested in obtaining foreclosures through “adverse possession,” lenders are pursuing other options to rid themselves of a glut of foreclosures:

The biggest U.S. mortgage servicer [Bank of America] will donate 100 foreclosed houses in the Cleveland area and in some cases contribute to their demolition in partnership with a local agency that manages blighted property. The bank has similar plans in Detroit and Chicago, with more cities to come, and Wells Fargo & Co. (WFC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Fannie Mae are conducting or considering their own programs.

Disposing of repossessed homes is one of the biggest headaches for lenders in the U.S., where 1,679,125 houses, or one in every 77, were in some stage of foreclosure as of June, according to research firm RealtyTrac Inc. of Irvine, California. The prospect of those properties flooding the market has depressed prices and driven off buyers concerned that housing values will keep dropping…

Bank of America had 40,000 foreclosures in the first quarter, saddling the Charlotte, North Carolina-based lender with taxes and maintenance costs. The bank announced the Cleveland program last month, has committed as many as 100 properties in Detroit and 150 in Chicago, and may add as many as nine cities by the end of the year, said Rick Simon, a company spokesman.

The lender will pay as much as $7,500 for demolition or $3,500 in areas eligible to receive funds through the federal Neighborhood Stabilization Program. Uses for the land include development, open space and urban farming, according to the statement. Simon declined to say how many foreclosed properties Bank of America holds.

This article describes small efforts by these lenders. If there are indeed over 1.6 million homes in some stage of foreclosure and more likely to come, lenders would need to bulldoze or donate a lot more homes to really clear up the supply and help stabilize home prices.

I wonder if the lenders are pursuing these goals with these small moves:

1. Building goodwill within the community.

2. Getting rid of the worst of the worst properties and just cutting their losses.

Neither of these options are bad but it remains to be seen what lenders will do with the majority of foreclosed properties. I think we’re a ways from Warren Buffett’s suggestion that we simply “blow up a lot of houses.”

(h/t Instapundit)

“Ugly houses” dragging down the housing market

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Here’s an interesting possible explanation for the problems of the housing market: buyers don’t want “ugly houses.”

Maybe Americans aren’t avoiding buying homes right now — maybe they’re just avoiding buying ugly homes. The housing market may be splitting into two sub-sectors: well-kept, good-looking homes and run-down, torn-up homes. Could the latter group be preventing the housing market from stabilizing?…

The disparity between these two groups of homes matters, because Lichtenstein has seen prices of the good properties remain relatively strong recently, as prices of worse properties have declined. This means that it’s those run-down, dilapidated foreclosed homes and short sales that will disproportionally bring down aggregate home prices, while well-kept homes should see much smaller price declines, or even appreciation.

Based on his experience, Lichtenstein asserts staging homes is more important than ever, as sellers need their house to appear as pristine as possible to appear to buyers. But his observation could have another logical conclusion: the market could be ripe for some renovate-and-flip business…

This gives investors two options: revitalize the foreclosures that have sale potential and rent out the others. If the inventory is tackled through these strategies, then price aren’t going to suddenly soar, but they could begin to stabilize sooner.

Would it take all that much work for someone to crunch some numbers to test this idea? As a rough proxy measure, one could use the year the structure was built as a starting point.

Reading this, I wonder if this has been a growing issue for much longer than the current economic crisis. Watch HGTV for a little bit and it seems like most buyers want everything in their new home: great appliances, updates (granite countertops! hardwood floors!), and all in move-in condition. How many homebuyers, whether they are younger and will work a lot of hours each week or older and want to downsize and not spend as much time maintaining a house, want to take on the time and expense of fixing up or updating a home?

In the long run, this could lead to some issues if no one is really interested in dilapidated homes. Communities might then have to make decisions about what to do with empty homes and how to best use the land. As an example, I’m thinking of the areas west and northwest of downtown South Bend, Indiana: the homes aren’t worth the time of investors because prices aren’t going up and few people would want to fix them all up. While this issue might commonly be tied to Rustbelt cities like South Bend or Detroit or Cleveland, perhaps it will be coming to more communities.

Data suggests we have not reached a new McMansion era

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Curbed National summarizes a Wall Street Journal story in a post titled about McMansions Return:

During the economic downturn, McMansion-style housing projects largely fell by the wayside, with average house size shrinking steadily over the past four years. Well, according to new data compiled by the National Association of Home Builders, the Mickey-Ds approach to home building is making a comeback this year. Please, no.

If you were just reading this quick summary, you might think McMansions are “making a comeback.” But the data cited in the Wall Street Journal story doesn’t quite say this:

But the Home Design Trend Survey, released today by the American Institute of Architects, shows a slight change from previous years on home size and buyer sentiment.

The survey, which has been conducted quarterly since 2005, asks a panel of 500 architectural firms that focus on residential properties what customers are asking for in new developments. The percentage reporting that customers wanted smaller houses has seemingly started to drop.

This year, about 52% of firms surveyed reported a decrease in the square footage of the houses they’re designing this year, down from 57% last year. Today’s numbers also show fewer firms reporting decreases in lot size (down to 22 percent from 32 percent) and lot volume (down to 18 percent from 21 percent).

“Overall, home-and-lot sizes showing signs of increasing slightly indicates that the housing market is stabilizing after being in a downward spiral since 2007,” says Kermit Baker, AIA’s chief economist.

So it’s not that homes are getting larger; rather, the decrease in size over the last few years is slowing. The downward trend line is plateauing. This does not necessarily mean that it will go up soon – as Baker suggests, perhaps housing is just “stabilizing.” Both headlines, the Wall Street Journal post is titled “Are McMansions Coming Back in Style,” seem pretty sensationalistic by suggesting McMansions are once again going to be the norm when the data really doesn’t say this.

Also: the WSJ story throws in a paragraph about an uptick in outdoor kitchens. While the rest of the story suggests McMansions are all about size and square footage, this add-in suggests McMansions also are luxurious homes. I would be curious to know how often outside kitchens are used by homeowners that have them.

High housing prices in Vancouver due in part to increase in Chinese homeowners

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Vancouver may be known as one of the most liveable cities in the world but the housing prices are also quite high. This is in part due to an increase in Chinese homebuyers:

Buyers from mainland China are leading a wave of Asian investment in Vancouver real estate as China tries to damp property speculation at home. Good schools, a marine climate and the large, established Asian community as a result of Canada’s liberal immigration policy make Vancouver attractive, said Cathy Gong, who moved from Shanghai to the Shaughnessy neighborhood on Vancouver’s Westside about three years ago.

China, where home prices rose 28 percent in Beijing and 26 percent in Shanghai last year, according to the country’s biggest real estate website owner SouFun Holdings Ltd., has taken steps to curb property speculation within its borders. Chinese home prices gained for 19 straight months through December and climbed in almost all 70 cities tracked by the government during the first quarter. Premier Wen Jiabao placed curbs on mortgage lending, boosted down-payment requirements and limited the number of purchases.

“As the Chinese get more and more prosperous, they are diversifying their assets out of China,” said Jim Rogers, an American investor who moved to Singapore from New York four years ago so his daughters could learn Chinese. “Vancouver is very high on the list.”…

The current group of Chinese homebuyers in Vancouver is the third “wave” from Asia since 1990, following Taiwanese and Hong Kong immigration, said Manyee Lui, a veteran Vancouver realtor. “People from mainland China are the new immigrants,” Lui said.

This is a reminder that real estate truly is a leading industry in the global economy as people from different countries seek out desirable properties. In escaping a real estate bubble in China and increased regulation but with money to spend, Chinese homebuyers are now looking at Vancouver. (Vancouver may not be the only place: I also recently wrote about a story of Chinese residents building “monster homes” in New Zealand.)

It is interesting to note the reactions of Vancouver residents: the influx of Chinese homebuyers has raised housing values, perhaps pricing others out of the market, and the schools now have a large number of non-native English speakers. At the same time, I assume Vancouver residents take pride in the cosmopolitan nature of their city. One resident mentioned the possibility of the government restricting foreign homeownership – is this really the route to go? Will this end up turning into a debate between local and global interests?

Witold Rybczynski on McMansions, American housing, suburbs

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With the continued housing slump (and a story going around that the $8,000 homebuyer credit of recent years only masked the issues of the housing market), a number of commentators have shared their thoughts about the future of housing in America. Witold Rybczynski weighs in with his prediction for the near future in a piece with the headline of “McMansions dead at last?“:

Owning single-family houses represents a long-established tradition that the U.S. shares with many countries (Canada, Australia, the United Kingdom, Ireland, the Netherlands, Norway), but 10 years is long enough for traditions and behavior to change. It is likely that in the future multifamily housing will represent a larger share of the American housing market than the one-in-five new dwellings that has been the historic norm.

What about single-family houses, which will still remain for many people the home of choice? There is some evidence that urban townhomes and infill housing are more popular, as rising gas prices increase the cost of commuting. Higher energy costs also affect heating and air conditioning, which may have the effect of discouraging homebuyers from purchasing large houses with soaring entryways and expansive family rooms. While the evidence is fragmentary—the current reduction in average new house sizes has more to do with the preponderance of first-time buyers than an overall shift in demand—it is clear that the long recessionary cold-shower will dampen the exuberance that characterized the boom years of 2000 to 2005. That will mean smaller houses closer together on smaller lots in inner suburbs, fewer McMansions, and fewer planned communities in the distant hinterland. An alternative scenario is that American optimism will prevail and it will be business as usual, as happened during the boom of the 1950s following the Great Depression, or during the period following the Energy Crisis of 1973, when car buyers, after a brief flirtation with Japanese compact cars, embraced minivans and SUVs. But I wouldn’t count on it.

It sounds like Rybczynski thinks the American housing market will be denser and smaller in the future as a reaction to the last few years. He also makes the point that one big issue plaguing the housing market is more demographic in nature: household formation has slowed down as more people are living with other people rather than starting their own households that require a separate home.

Two other things also seem noteworthy:

1. Rybczynski suggests the reduction in home size is more due to having more first-time buyers than anything else. What about downsizers, particularly Baby Boomers who are retiring or whose children have left the house, that others have talked about?

2. Rybczynski also suggests that we will have fewer planned communities. I assume he is referring to larger planned communities/suburbs that simply may not be possible with low housing demand. But what about a possible uptick in smaller planned developments done by New Urbanists and others who can offer a denser form of suburbia?

Perhaps the fun part about reading pieces like this now is that we likely have years before we can really assess whether something has changed. In the meantime, we can wonder how low home values might go.