Sun sets on McMansions

How economics of building larger homes have changed

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jan. 21, 2011

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The impact of home-value appreciation has been negated by the downturn. Not only have home prices depreciated, but no one believes aggressive appreciation will return to the housing market for at least 10 years, if not longer. That makes the economics of owning a big house formidable.

The cost of furnishing a bigger house, heating and cooling the structure, and even the commutation between it and the place of employment was always imposing, but now there is no longer the appreciation factor that in the past made the situational sacrifice worth it.

"Homeowners feel the days of appreciation are not coming back so they are not going to be purchasing homes just for the sake of investing," said Kermit Baker, chief economist with the American Institute of Architects and a senior research fellow at Harvard University's Joint Center for Housing Studies.

"Homebuyers are purchasing because of how they intend to use the home, on the basis of what they need. They are treating their home more like typical consumer goods rather than investment goods."

Baker added that consumers don't need McMansion-type space, as "they can't afford to heat and cool the space, and given higher energy costs, why bother trying?"

It should be noted, historically, every time there has been a recession, home sizes tended to level off or even scale back. Also, today's numbers are influenced by the higher percentage of first-time buyers, who tend to purchase smaller homes.

"Some 40 percent to 50 percent of home sales are going to first-time buyers," said Bishop. "It's a different market than when the share of homes sold to first-time buyers had fallen to the 30 percent range."

That means there were a lot more trade ups, such as with my friends, than there are now.

Has the trend line to bigger homes has abated for good, or when this cycle turns, will homebuyers go on another McMansion binge?

"The shift to smaller homes could be long term," Baker suggested. "If you look back at what really caused the increase in home size, I'm guessing we're not going to see those factors again."

Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade," has been ranked as a top-selling real estate investment book for the Amazon Kindle e-reader.

Contact Steve Bergsman:
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