Are McMansions McOver? Opinions vary, even among the experts.
If recent trends are any indication, however, the bigger-is-better approach to residential real estate may already be giving way to a more reasoned level-headedness, both in home buying and building. Call it a redefinition or right-sizing of what we consider luxury living that has more to do with architectural scale, energy efficiency and creating livable space than with gross square footage.
Like some real estate equivalent of the SUV, McMansions have been the object of scorn and ridicule since they started elbowing their way onto the suburban landscape in the late 1980s and early 1990s. Loosely defined as a house between 5,000 and 10,000 square feet with soaring grandiose entryways and multi-car garages, often jammed onto an undersized lot, McMansions quickly went from ostentatious status symbol to something even the Joneses didn’t want to keep up with.
A historic confluence of factors — boomer inheritances, the post-2000 tech-stock collapse, super-low interest rates, the mortgage-lending explosion — drove America on a cattle stampede to invest in real estate. Today more and larger forces — energy costs, higher interest rates, the mortgage-lending implosion and demographic shifts — have now slowed the market to a surly teenager’s stroll.
“I firmly believe that when the housing market slows, you’ll see a short-term drop in the demand for large homes. But in the longer run, it’s going to be even more challenging to sell these because the average household size of the boomers is going to go down as the last kids leave,” says Thomas Lawler, a housing consultant based in Vienna, Va.
Meaning the inventory of McMansions is likely to grow. And grow. And grow. Could we one day see a landscape with large white elephants lingering on the market?
“I find it difficult to see how we won’t,” Lawler says.
Gopal Ahluwalia, vice president of research for the National Association of Home Builders, isn’t as quick to perform last rites on the McMansion.
“There is a definite decline in those homes, but are they on their way out? No. ...They are not on their way out; they have slowed down with the whole housing market,” he says.
There are numerous reasons why McMansions are in decline:
• The cost of maintaining a McMansion continues to rise. Energy, insurance and home-maintenance costs are all affected by home size. Energy costs have been on a tear nationally; over the past three years, natural gas is up 43 percent and electricity rose 12 percent, according to the U.S. Energy Information Administration. If you own an average-size home but fancy a McMansion, imagine these bills suddenly doubling. Or tripling.
• McMansions looked better when interest rates were lower. With rates on a 30-year fixed mortgage at 6.29 percent as of early May 2007, a $1 million McMansion would cost you $6,183 per month; the same manse at 5.28 percent in June 2003 would have cost you $5,541 a month.
• It’s hardly news that municipalities from coast to coast have been rapidly reappraising and reassessing homes to capture revenue based on “bubble” values. Not good news if you own a McMansion.
• As the housing market slows to a crawl, the demand for McMansions as an investment has declined. “An obvious reason is the desire for people to have a larger amount of their net worth invested in real estate has gone down,” Lawler says. “You would expect that the larger homes are going to have less home-price appreciation, and possibly more home-price depreciation, over the next decade than would be the case for the smaller homes.”
• Simply put, who’s going to want my McMansion? The buyer pool may be drying up as boomers downsize for retirement and Gens X and Y eschew size for more modest, versatile modern spaces they can afford.
Nevertheless, Ahluwalia expects McMansions to remain a viable and even desirable option well into the future, even if it takes longer to find the right buyer. The reason? It’s as simple as human nature.
“Why do people buy huge houses? Because they can afford it. It’s the same as asking why do you buy a $90,000 Mercedes when the same function can be provided by a $30,000 car. I can afford it, I like it and I have enough to spare. It does not have to do with the functional need of the space. If the lifestyle can afford it, it’s a good investment.”
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