Tag Archives: Trulia

Claim that McMansions have proportionally lost resale value

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A recent study by Trulia suggests McMansions don’t hold their value:

The premium that buyers can expect to pay for a McMansion in Fort Lauderdale, Fla., declined by 84 percent from 2012 to 2016, according to data compiled by Trulia. In Las Vegas, the premium dropped by 46 percent and in Phoenix, by 42 percent.

Real estate agents don’t usually tag their listings #McMansion, so to compile the data, Trulia created a proxy, measuring the price appreciation of homes built from 2001 and 2007 that have 3,000 to 5,000 square feet. While there’s no single size designation, and plenty of McMansions were built outside that time window, those specifications capture homes built at the height of the trend.

McMansions cost more to build than your average starter ranch home does, and they will sell for more. But the return on investment has dropped like a stone. The additional cash that buyers should be willing to part with to get a McMansion fell in 85 of the 100 largest U.S. metropolitan areas. For example, four years ago a typical McMansion in Fort Lauderdale was valued at $477,000, a 274 percent premium over all other homes in the area. This year, those McMansions are worth about $611,000, or 190 percent more than the rest the homes on the market.

The few areas in which McMansions are gaining value faster than more tasteful housing stock are located primarily in the Midwest and the eastern New York suburbs that make up Long Island. The McMansion premium in Long Island has increased by 10 percent over the last four years.

Read the Trulia report here.

Interesting claim. After the housing bubble burst, some commentators suggested that Americans should go back to not viewing homes as goods with significant returns on investment. Instead, homes should be viewed as having some appreciation but this happens relatively slowly. This article would seem to suggest that return on investment is a key factor in buying a home. How often does this factor into the decisions of buyers versus other concerns (such as having more space or locating in the right neighborhoods)? And just how much of a premium should homeowners expect – 190% more than the rest of the market is not enough?

This analysis also appears to illustrate both the advantages and pitfalls of big data. On one hand, sites like Trulia and Zillow can look at the purchase and sale of all across the country. Patterns can be found and certain causal factors – such as housing market – ca be examined. Yet, they are still limited by the parameters in their data collection which, in this case, severely restricts their definition of McMansions to a certain size home built over a particular time period. As others might attest, big homes aren’t necessarily McMansions unless they have bad architecture or are teardowns. This sort of analysis would be very difficult to do without big data but it is self-evident that such analyses are always worthwhile.

Proclaiming the end of the “McMansion era”

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CNBC reports that the real estate site Trulia.com says “the McMansion era is over.” This is based on evidence that more people want smaller homes:

Just 9 percent of the people surveyed by Trulia said their ideal home size was over 3,200 square feet. Meanwhile, more than one-third said their ideal size was under 2,000 feet.

“That’s something that would’ve been unbelievable just a few years back,” said Pete Flint, CEO and co-founder of Trulia. “Americans are moving away from McMansions.”

The comments echoed those made in June by Kermit Baker, the chief economist at the American Institute of Architects.

“We continue to move away from the McMansion chapter of residential design, with more demand for practicality throughout the home,” Baker said. “There has been a drop off in the popularity of upscale property enhancements such as formal landscaping, decorative water features, tennis courts, and gazebos.”

“McMansions just look and feel out of place today, given the more cautious environment everyone’s living in,” said Paul Bishop, vice president of research for the National Association of Realtors.

And homebuilders are heeding the call: In a survey of builders last year, nine out of 10 said they planned to build smaller or lower-priced homes.

This is interesting information – the McMansion was and is commonly cited as part of the excess of the late 1990s and early 2000s. But I have a few questions and thoughts:

1. We are in the middle of a housing crisis, one that is virtually unprecedented in recent history. Could these results simply be the result of this period? Look at the data over time: Americans since 1950 have progressively wanted larger homes. Might this change as soon as the economy or housing market picks up again?

1a. We would have to wait and see whether this shift might be a longer-term move to an emphasis on quality and appointments rather than sheer space. Since family size has dropped over the years, it makes sense that homes might not get so large. Or perhaps more people subscribe to some green ideas about having a small footprint.

2. There is still some demand for homes over 3,200 square feet. If you look at the Trulia infographics, most people seem to want homes around the 2,000-2,600 square foot range. These are not small homes – they would be slightly smaller than the average size of new homes built in most years of the 2000s and are larger than most American homes built after World War II.

3. This is survey data which gives us some measure of what people want to buy. However, people still have to make choices on the open market – will they turn down larger houses for smaller houses for an extended amount of time?

4. Will home prices go down or stay low in the long run – or will builders make up for having smaller homes with more features that will cost more?

5. There are some questions about whether a downturn in McMansions is part of a larger, more radical shift toward a new kind of suburbia. Perhaps. But even if this were the case, it would take a while for these new developments to be large enough in number to counter the typical views of suburbia and it would also require Americans to develop a new sense of community.