Tag Archives: housing

“Shunning the McMansion”

Posted on by

Earlier this week, US News & World Report ran a story titled “Why We’re Shunning the McMansion.” Here seems to be the main data in this article:

Only 9 percent of consumers surveyed said they wanted a home 3,200 square feet or larger, according to a recent study by the NAR, while the majority of house hunters—about 55 percent—preferred homes in the 1,400 to 2,600 square-foot range. Builders also plan to scale back new home sizes as well, with 9 out of 10 builders expecting to build smaller, lower-priced homes in the coming years, according to a study by the NAHB.

Despite the drop in desired median home square footage, Melman says it’s not so much a matter of downsizing as “right-sizing”—forgoing larger homes with unused space for smaller, more efficient and well-laid-out homes. Americans are reconsidering the notion of financially stretching themselves to the limit to purchase a large home. “The trend here is shelter value,” he says. “Affordability is driving the decisions. If you buy a home that’s a little bit smaller, that’s one way to get some control over energy costs and the overall costs of the home.”

The article goes on to say more about how affordability is the primary driver of this trend, particularly due to increased difficulties in obtaining mortgages.

Several things strike me in this summary:

1. What is the percentage of Americans surveyed who said they wanted a home between 2,600 and 3,200 square feet? If we knew this percentage, we could add this to the 9 percent who want a home bigger than 3,200 square feet. Why not say what percentage of Americans want a home bigger than the average new house size of roughly 2,450 square feet? Also, to better make this point, it would be helpful to compare this data to earlier surveys about what size homes Americans want.

2. I still would be interested in seeing some data about how much cheaper these smaller homes are. If one wants a smaller home but wants a lot of features, that still might cost quite a bit. And might we see some of the design trends of bigger homes, such as stucco exteriors or always-on gas lamps, trickle down to these smaller homes?

3. The article seems to set the size of McMansions at 3,200 feet and above. So all homes with this square-footage or above are automatically a McMansion?

The future of McMansions: torn down for smaller homes?

Posted on by

In a typical teardown situation, an older home, often in a pleasant neighborhood, is torn down and replaced by a larger, modern home. One Greenwich, Connecticut realtor suggests this pattern might be reversed in the future:

Pruner is also detecting a trend away from “McMansions” with massive square footage to smaller-scale well-built homes.

“I can foresee the newspaper headline: ‘McMansion taken down for more modest house,'” he said.

It is not bold to suggest that Americans want smaller homes: a number of sources, including the National Association of Home Builders, have noted this. But to suggest that larger homes will be torn down and replaced with smaller homes seems more unlikely. In order for this to happen, the McMansion would have to be relatively cheap and the property really desirable. Even after the drop in housing values, a big house is going to be relatively expensive and with many critics suggesting McMansions are also built in terrible suburban neighborhoods often made up of a lot of McMansion, I’m not sure there are many locations that fit this bill. And building a “more modest house” doesn’t necessarily mean a cheaper house – small homes can have a lot of features that drive up the price. But to tear down a larger space, whether it is a McMansion or a big box store, it seems like the conditions would have to be perfect and then it would be difficult for this to be a trend.

Another article on declining homeownership rates

Posted on by

Bloomberg Businessweek highlights how American’s view of home ownership has changed in the last few years:

The most affordable real estate in a generation is failing to lure buyers as Americans like Pauli sour on the idea of home ownership. At the end of 2010, the fourth year of the housing collapse, the share of people who said a home was a safe investment dropped to 64 percent from 70 percent in the first quarter. The December figure was the lowest in a survey that goes back to 2003, when it was 83 percent.

“The magnitude of the housing crash caused permanent changes in the way some people view home ownership,” said Michael Lea, a finance professor at San Diego State University. “Even as the economy improves, there are some who will never buy a home because their confidence in real estate is gone.”…

“If we’ve learned anything from this mess, it’s that housing is not a risk-free investment,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch Global Research in New York. “Everyone knows someone underwater in their mortgage or struggling to sell a home.”…

The U.S. home ownership rate dropped to 66.5 percent in the fourth quarter, the lowest in more than a decade, according to the Census Department. The rate probably will retreat another percentage point by 2013, according to Meyer, of Bank of America Merrill Lynch, and Lea, the finance professor. That would put it back to a 1997 level.

“People will still aspire to own their own homes,” Lea said. “They’ll just be a lot more practical about it.”

This article tends to focus on the money side of things (housing as less of an investment, tighter credit, lots of people with underwater mortgages, a future with a reduced or no involvement from Fannie Mae and Freddie Mac, etc.) but I think the key (or exciting) information is in the last two paragraphs I cited above:

1. The homeownership rate has dipped but not a whole lot. Even in the housing boom of roughly the mid 1990s to the mid 2000s, the US homeownership rate increased from 63.6% in early 1993 to 69.2% in late 2004. So over an eleven year stretch of relative prosperity and increasing home values, homeownership rose about 6.5 percentage points. From this peak in late 2004 (69.2%), the homeownership rate had dropped to 66.5% for the fourth quarter in 2010. In a six year stretch, the rate had dropped 2.7%. If you look at the historical data since 1965 (all of these figures are from an Excel table on the Census website – Table 14 on this page), before the 1990s, the homeownership rate moved fairly slowly either up or down. Perhaps what is not so unusual about homeownership is not that it has fallen in recent years but rather that it rose so much between 1993 to 2004.

2. Additionally, this is all tied to American aspirations: do they still aspire to own their own home? While this article (and many others) highlight how this might now be more difficult, this key part of the American Dream still seems to be intact. Even if future neighborhoods or suburbs look different (like this article suggests they might), the interest in owning one’s property still appears to be high. While there is no guarantee that more and more Americans will be able to own their own homes (how high might the American homeownership rate realistically go anyway?), it will likely take more than this what has happened in this particular economic crisis to cast a new vision of American fulfillment that doesn’t include a single-family home or space.

Chinese purchase “monster homes” in New Zealand

Posted on by

McMansion type homes are not just restricted to the United States. This article describes what Chinese buyers are moving into in New Zealand:

When veteran architect Ron Sang drives around the outer fringes of Auckland near Albany or Botany, he can always spot a house built for a Chinese buyer.

“Generally it has a high portico on the outside – a big, high, ostentatious-looking porch, usually double height,” he says.

“Generally above the door you have a window and through the window you can see chandeliers. Inside the door you’ll see a big, ostentatiously curved stairway. They like to show wealth.”

These grand mansions on small suburban sections – what sociologist Paul Spoonley, adopting a Canadian term, calls “monster houses” – have become the stereotypical Chinese footprints in our cityscape.

While the homes described here are called “monster homes,” this sounds very similar to what Americans would call McMansions with the traits of a big entryway, garish appointments, the goal of impressing a buyer or visitor, and large homes on relatively small lots in suburban neighborhoods.

There is an interesting discussion later in the article about Chinese immigration to and residential patterns of Chinese residents in New Zealand.

The evolving American Dream: more dense but still private

Posted on by

I’ve written about several aspects of the American Dream including unhappiness and how the American Dream might now be about perfection rather than acquiring goods or status. One key aspect of this Dream is housing, often viewed as a single-family house in a suburb. A new report from the National Association of Realtors suggests homebuyers now have some new preferences:

The 2011 Community Preference Survey reveals that, ideally, most Americans would like to live in walkable communities where shops, restaurants, and local businesses are within an easy stroll from their homes and their jobs are a short commute away; as long as those communities can also provide privacy from neighbors and detached, single-family homes. If this ideal is not possible, most prioritize shorter commutes and single-family homes above other considerations.

1. The economy has had a substantial impact on attitudes toward housing and communities…

2. Overall, Americans’ ideal communities have a mix of houses, places to walk, and amenities within an easy walk or close drive…

3. Desire for privacy is a top consideration in deciding where to live…

4. But, having a reasonable commute can temper desire for more space…

5. Community characteristics are more important than size of home…

6. Improving existing communities preferred over building new roads and developments…

7. Major differences in community preferences of various types of Americans…

All of these points are from the executive summary which also has some key percentages for each point.

The results of this survey seem similar to a recent report (see here) earlier this year from the National Association of Home Builders that suggested Generation Y wants more urban settings and more social (and smaller?) homes. In the long run, it remains to be seen whether these changes are broad cultural changes, generational changes (driven by younger generations), or opinions changed primarily by recent economic conditions.

Richard Florida sums up the report this way:

We’ve come to a crossroads that neither dyed-in-the-wool sprawl advocates nor crunchy urbanists dreamed of two decades ago, in which the choice isn’t between urban and suburban but between neighborhood and subdivision. A great neighborhood is a great neighborhood whether it’s in the city or the suburbs. It’s not an either/or, between crowded apartments or Cape Cods on cul de sacs, it’s more of a blend. Developers and planners take note: there is a potentially enormous market in cities for narrow single-family houses on small lots, like you see in places like Santa Monica and Venice. And as I wrote in The Wall Street Journal not too long ago, there are countless ways that our suburbs can be densified and reinvigorated. The American Dream hasn’t died–it just looks a lot different than it did in the 1950s. It looks a lot different than it did a decade ago.

So this report may not really be a repudiation of the suburbs but rather a new vision for suburbia: private yet dense (with still a clear 80% preference for single-family homes) and with neighborhood amenities. I am a little surprised that there aren’t more specific questions about preferred housing size or housing costs. Additionally, the survey seems set up to ask a lot of questions about smart growth with little explanation why this was the main focus.

(A side note: the study was a web survey:

The 2011 BRS/NAR Community Preference Survey is a web-enabled survey of adults nationwide using the Knowledge Networks panel. Knowledge Networks uses probability methods to recruit its panel, allowing results to be generalized to the population of adults in the U.S. A total of 2,071 questionnaires were completed from February 15 to 24, 2011. The data have been weighted by gender, age, race, region, metropolitan status, and Internet access. The margin of sampling error for the sample of 2,071 is plus or minus 2.2 percentage points at the 95% level of confidence. A detailed methodology can be found in Appendix A.

Knowledge Networks (KN) is a firm that gets around some of the common problems of web surveys (typically having to do with having a representative sample) by having representative panels who take web surveys. In order to get a representative sample, KN employs this technique:  “Since almost three in ten U.S. households do not have home Internet access, we supply these households a free netbook computer and Internet service.”)

Update on affordable housing debate in Winnetka

Posted on by

The Chicago Tribune reports on Tuesday’s meeting in Winnetka regarding a proposed affordable housing ordinance. Here is how the comments at the meeting were summarized:

Rick McQuet, a Winnetka resident, said at the meeting that the affordable housing plan is intended to help young families and recent college graduates.

“That young family was me about 15 years ago, a new degree in hand and aspirations of becoming a member of a truly great community,” he said.

Northfield resident June O’Donoghue received applause after she said she opposes the proposal because it interferes with the housing market.

“Housing is affordable to the people who can afford it. That is a simple thing,” O’Donoghue said. “I think you need a referendum for people to vote to see if they want to go through all this social engineering.”

In recent weeks, the plan’s opponents have said it amounts to “hand-outs” for people with lower income that could result in Section 8 housing, decreased property values and increased crime. Supporters have lashed out at the opposition as bigoted, arguing that the plan would allow teachers, clergy and other employees to live in the community in which they work.

Some thoughts about these comments (which may or may not represent everything that was said at the meeting):

1. The first comment I included above is interesting in that it refers to a common understanding of affordable housing in suburbs: it is not about helping the disadvantaged in society but rather “young families,” “recent college graduates,” and often elderly residents of the community. While this may be a good goal for a community (particularly if residents want their own family members in these categories to live in the community), this is a different understanding of “affordable housing.” Perhaps this is what has to be done in many suburbs order to counter the plan’s opponents who are quoted as saying this is really about helping lower-income people. But overall, there are needs for cheaper housing in society beyond people who might fit a profile of a community but simply don’t have the money.

The plan seems to play to this more suburban understanding of affordable housing:

The proposed plan would apply to new developments, in which 15 percent of owner-occupied units must be affordable to households earning at least $75,000 per year, while 15 percent of rental units would be affordable to those earning at least $45,000. Current residents and senior citizens would receive priority, the plan says.

According to the Census, the 2009 median household income was $49,777 so the part of the plan for people making at least $45,000 is still drawing from near the top 50% of American incomes.

2. “Social engineering” is always an interesting term to think about. In finishing my taxes for this year, I was reminded that our tax code is riddled with all sorts of “social engineering” in terms of promoting or incentivizing certain activities. We as Americans value homeownership so we have a home mortgage interest deduction (which some argue should be taken away). We give deductions for giving money to charities. Is all social policy “social engineering” or just policies that some people don’t like?

A narrative about McMansions at the heart of the economic crisis

Posted on by

With an ongoing economic crisis and housing slump, there are plenty of stories about who has been hit the hardest. But one writer suggests that perhaps we can’t just simply say that those who were excessive in their consumption and purchased McMansions are the only ones affected:

With an ongoing economic crisis and housing slump, one target of blame is McMansion buyers. But one writer suggests the economic crisis affects more people than just those who consumed beyond their means:

The nation’s lingering housing foreclosure mess is too often about folks with McMansion-size aspirations and duplex paychecks, granite counter appetites and laminate budgets.

And when we hear that one of the nation’s hot spots for foreclosures is Prince William County, we nod knowingly, thinking of the vast tracts of huge new homes and the dreamers who drowned in them.

But the other day, I met some of the folks who lost their homes or are fighting with banks to try to keep them. And McMansion isn’t what comes to mind.

The rest of the story goes on to describe the stories of a few people who lived more modest lifestyles and yet have still fallen into housing issues.

I would be interested in seeing some figures about what kinds of homes or types of owners are those who have experienced the most foreclosures or mortgage difficulties. Is it really McMansion owners or others? We hear quite a bit about regional differences, such as high vacancy rates in Florida and high foreclosure rates in certain states or cities, but less about other factors.

In reading this one particular story, I wonder why people might be quick to jump on people like those who live in Prince William County (a wealthy county – this Wikipedia list has it as the 14th highest county in the country in terms of median household income). How much of this is a moral judgment leveled against McMansion owners and houses more broadly? With this housing crisis, it now looks like McMansions are also a bad economic deal, adding to the other issues that critics say McMansions have.

Boost home values by leaving out distressed sales

Posted on by

The Chicago Tribune looks at one way home values might stabilize: simply don’t include distressed home sales in the calculations and in appraisals.

A report from data provider CoreLogic showed that Chicago-area single-family home prices were relatively flat in February, down only 0.37 percent from a year ago. But that figure includes only traditional sales and not the impact of distressed-sales prices. Add in the sales of foreclosed, bank-owned homes and short sales, and Chicago-area home prices fell 10.4 percent in February on a year-over-year basis…

There’s one problem with Ford’s proposal, though. Appraisers are licensed by the state of Illinois but follow uniform federal guidelines that dictate that they analyze available comparable sales.

“It would lead to a misleading report,” said Chip Wagner of A.L. Wagner Appraisal Group Inc. in Naperville. “You can’t overlook any of the factors in the marketplace that are influencing factors. It sounds like a good idea in fairness to homeowners, but the appraisers that follow that would be in (danger) of losing their licenses.”

While this is being considered in a number of locations, it does seem that legislators would need to decide whether the benefits for homeowners outweigh the limitations.

Additionally, this sort of story might be good ammunition for those who are cynical about statistics: can’t you just change around a definition and say something very different (in this case, Chicago home sales have declined versus they have barely declined)? But at the same time, most statistics are dependent on their operationalization: whether home sale values should include the sales of distressed homes is more of a definitional issue and decisions about this would likely come down to vested interests and motivations.

The “reincarnated McMansion”

Posted on by

I saw a couple of pieces referring to the Reincarnated McMansion project. Here is the mission of the project:

Through a media campaign, select suitable building and willing McMansion owner.

Audit, dismantle, and rebuild using existing McMansion materials to create 2 homes, applying best practice environmentally sustainable design principles.

You can read more details of the project here. And if you are a resident of Australia who lives in a McMansion, you would have to meet these guidelines to be part of the project:

  • Do you own a home that has a floor space exceeding 360sqm? (If you are not sure how big your home is, measure the outside dimensions of your home and multiply the width by the length of your building. For example, if the outside dimensions are 13 x 15 m (195sqm) and you have a second floor, your home is approximately 390sqm.
  • Does your council allow dual occupancy in your residential zone? (If you are not sure, call your council – most lot sizes greater than 700sqm allow dual occupancy)
  • Are you willing to contribute financially to the project an amount equal to the value added to the site through the Reincarnated McMansion intervention? Receive very significant service and product subsidies through project sponsorship agreements (in the order of 200K – this figure is our initial estimate)
  • Are you prepared to find alternative accommodation (or go on a holiday!) for the duration of the auditing, dismantling and rebuilding process approximately 6 months.
  • Tell us about your home, your family and why you wish to be involved in the project.
  • If you can, please attach digital images of your home.

It will be interesting to see who they sign up for this project: it would require admitting that your home is a McMansion as well as giving up your home.

If this idea catches on, perhaps we will see it imported to the United States where the housing market continues to be in the doldrums. And this is not the only team looking to reuse McMansions – perhaps these groups are forerunners of a larger trend.

Using Groupon to sell real estate

Posted on by

With the real estate market in the doldrums (and no end in sight), there are reports about a new strategy that would leverage the popular site Groupon:

In the Dream Town deal, the brokerage will pay out $1,000 in cash at closing to home buyers or sellers that spend $25 for the Groupon. The voucher is good for one year from the date of purchase. The offer launches on Friday and will run for a week. On Monday, it will be the featured deal for Chicago subscribers.

The Dream Town deal tips with 50 vouchers purchased, said co-founder and president Yuval Degani. The coupons apply to both traditional and distressed properties, and buyers can be owner-occupiers or investors. The transaction must be at least $150,000 to qualify for the deal, and there is a limit of one Groupon per customer. There is no cap on the total number of Groupons that can be sold.

“Our big picture is we’re really an emerging company,” Degani said, noting that Dream Town has focused on its Web presence and search engine optimization, which helps its site appear higher on search results. “What we’re trying to do is acquire new customers. We’re not really looking at (the Groupon deal) as a reduced commission. We’re looking at it as getting customers for life.”

Degani said Dream Town has four locations and 165 agents in the area.

I wonder how many people will take this offer and then use it within a year. Typical Groupon deals are for smaller or more immediate purchases while this asks buyers to consider a bigger and more important purchase. But if you are already looking to buy (though there are a limited number of these people), $1,000 in cash could sound pretty good.

The article also mentions some other innovative offers that have recently popped up on Groupon. Seeing this story reminds me that the outgoing Mayor Daley spoke at length in a speech on campus (here, here, and here) about the success story of Groupon. But a city like Chicago will need a number of companies like Groupon to develop and thrive in order to gain population.