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My Big, Fat Trashy Home: The Fall of the McMansion
| August 27, 2010 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
Your house is about 6,000 square feet, almost triple the size of the national average. It has five bedrooms and bathrooms, two-story entryway, three-car garages, master suites with sitting areas and whirlpool tubs. With a crib like this, how could anyone not be impressed? Well, many aren’t. There is a growing backlash for homes that fit the aforementioned description, commonly called McMansions.
What is the Problem
Detractors have called these homes “garage mahals,” “faux chateaux”, “tract castles,” “hummer houses,” and “starter castles.” Although these homes boast of many nice features, many of these homes and their features look and feel out of place because they are characterized by sprawling layouts on small lots and poor craftmanship and materials..
According to Wikipedia: They’re tacky, they lack a definitive style and they have a “displeasingly jumbled appearance.”
Amongst the biggest critics are longtime residents of the neighborhoods populated by McMansions. Often they fear that the McMansions are out of character with their neighborhoods. Additionally, these homes also quickly raise property values and tax rates. During a time of budget shortfalls, more tax money to a small town that doesn’t have much of a commercial tax base and higher property values may appear good, but many longtime residents simply cannot afford the changes. Some of these longtime residents have formally mobilized, raising complaints to their local government. As a result, many “light and view blocking” ordinances have been passed including: moratoriums on McMansions (Atlanta, GA), home and footprint size limits (Arlington County, VA and Wood-Ridge, N.J.), big-and-tall ordinances for homes greater than 4,000 square feet or over 30 feet high (Marin County, CA), and several other special procedures and requirements for larger homes.
Another challenge these McMansions have faced is luring in buyers. “McMansions just look and feel out of place today, given the more cautious environment everyone is living in,” said Paul Bishop, vice president of research for the National Association of Realtors (per CNBC). For example, consider that the heating and cooling costs could easily raise your energy bill to $5,000 a year or more for a 5,000-square-foot house. Some homes will set you back $1,000-a-month for utility bills and $25,000 in annual taxes. Consequently, some owners of McMansions have questioned their initial logic in making such purchases for numerous reasons including: poor quality of materials and craftsmanship and high expenses. Some are down-sizing the space while upgrading for higher-quality construction and better features. Having less space often means having less of a cleaning, maintenance, and financial burden. The rationale is “why keep a room that is never in use?” Other couples have are selling simply because their families or budgets are smaller. Of course, McMansions hefty price tags certainly deter potential buyers as well.
How Did We Get Here
The primary cause of the McMansion glut is: speculation. We have discussed it before. Many people erroneously thought of their homes as assets. Thus, if homes are assets, it only makes sense to get as much of that asset as possible. Hence, several people were using their homes to speculate in the real estate market. After all, people thought home prices would only go up. Consider it this way, if you ask a banker to give you a loan to purchase stock, they will kick you out on your butt. However, this is certainly not the case if you ask for a mortgage, provided that you meet the lender standards. Thus, some people were thinking of their homes as part of their retirement portfolios.
Another cause of the McMansion glut is the overall trend of the American home size increasing. Back in 1950, the average home in America was 983 square feet. However, in 2004, the average home size had swelled to 2349 square feet (140% increase). Specifically, the modern mega-house trend has been about a 20-year trend according to Robert Lang, director of the Metropolitan Institute (per MSN). However, after years of growth, it appears that this trend has officially changed. A recent survey of builders in 2009 indicated that nine out of 10 said they planned to build smaller or lower-priced homes (per CNBC). Additionally, the Census Bureau reported that the median new home size fell to 2,135 square feet in 2009 after peaking at more than 2300 earlier in the 2000s. (per CNN money). Moreover, many real-estate experts say they think this trend of downsizing, or “right-sizing,” is here to stay. The rationale is if families had to downside or “right-size” because they were financially over-extended, such as due to foreclosure or bankruptcy, they will be generational imprinted with this negative experience and will not repeat this mistake. However, this principle seems to be more theory than actuality because history tends to repeat itself continually.
Only, time will tell whether the death blow has truly been dealt to the “garage mahals” after all.
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Here’s a question for you: Why would or wouldn’t you purchase a McMansion? Do you feel they are gone forever or are they just in a cyclical trend?
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Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.
The McMansions are a highly visible and telling sign of the malinvestment and the combination of low interest rates, government-mandated lending, and poorly functioning ratings agencies. Improper asset values and rates distort the true price of McMansions and other ill-advised investments and encourage more investment into them than should have been the case.
It may be that many of these McMansions will end up being recycled into building materials or destroyed. It's a shame, but it's better than continuing to distort the economy to entice people back into homes that they can't afford or are unwilling to pay for.
The McMansions were in the sweet spot for builders to make maximum profits as long as they could get a buyer qualified for a loan. I'd rather live comfortably below my means than be ostentatious.
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I certainly can understand what builders had to gain in building McMansions. I also think consumers were disillusioned as well as, dare I say it, greedy.
Disillusioned into thinking that these homes were worth it. I guess they were at that time until the market corrected itself.
Greedy by speculating. Surely most of us knew better but ignored all the warning signs.
Like you, I would rather be financially comfortable any day over house poor, which is the predicament many purchasers of McMansions found themselves in sadly.
Kind regards,
Shawn
Shawn – nice article. It really makes you think. There's a point where enough is enough. People talk about what they'd do if they won the lottery, a bigger house often on the list. Me? I'd downsize. Finding the perfect house is tough, the 3 bedrooms upstairs are perfect, but the living room and dining room on first floor aren't needed or used often. We are at 3400 and thinking 2400 is ideal for us.
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Wow downsize if you win the lottery? That's counter intuitive as to what I would expect, which I guess is your point. However, I can follow the rationale if the space is being improperly utilized.
Happy house-hunting when you do win (or get tired of the excess space). Overall, I think house-hunting is a very fun experience 🙂
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That trend was fueled by many factors, including cheap money and the stock options given to the employees of many technology companies, hence the reason for the large number of McMansions in places such as the Puget Sound region in Washington State, Austin, TX, and SIlicon Valley, CA. In many cases the buyers simply maximized their investment in a personal residence without stopping to think about other places to park the money they received form exercising their options. I was on the technology side of the construction industry and saw this many times. Some folks had eyes far too large for their stomachs, a condition exacerbated by builders, who would chronically under bid projects. As the project came close to completion the homeowner would realize that no, my house can't be built for $1.5 million, it will really be more like $2.5 million. House poverty rapidly ensued.
This is quite insightful. I had no idea how often builders would underbid projects. That's quite dishonest and part of the impetus as to why many have gone bankrupt with the real estate market in many areas. Thanks for an "insider's" perspective.
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Just for fun, we went and looked at some 5,000 to 6,000 foreclosures. We think they'd be waaaaay too big for our needs, but we were to surprised to see that they cost the same as 3,000 to 4,000 square foot homes in our area, since they are so heavily discounted. Like Joe, we're thinking smaller, though — 2,300 to 2,500 range. Why? We want adequate space to be comfortable (we have people over a lot), but we also want to have the money to do other things. I don't want a house payment eating into my discretionary income.
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I totally get not wanting a house payment eating into your discretionary income. There is no conflict in my mind (or your either) between choosing financial independence, solvency, and comfort over trinkets, doodads, and luxuries.
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I'm pretty sure our homes are not the only things we'll need to downsize in the coming years. Our overall consumption footprint was supersized for too long. The downsizing might hurt at first, but I have a feeling we'll all be better off in the end. Thanks for an insightful post!
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Hey 2cents,
Thanks for the redirection to the big picture. Yes, our economies surely include real estate, but real estate certainly isn't the only contributor. I know you smell something (i.e. crash) brewing or at least a bubble popping, given your recent posts.
People who want to survive financially better take heed to some of the changes that are going on in the marketplace and economy. Both of our posts on deflation, your posts on bubbles, my post on globalization, and the economic crash of 2011 are real issues that have tangible implications to our daily lives.
Downsizing your lifestyle in order to put you in a better financial position may be uncomfortable (or "hurt"); however, the confidence and peace that comes with being in control of your destiny is incomparable, no?
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What's even worse than McMansion are the MegaMansions. I laugh every time I think about Candy Spelling's 100+ room house. Who in their right mind would buy that thing, unless you wanted to turn it into a hotel?
Hey Bret,
Some people just buy stuff because they can I guess. I don't think there is any shame in truly asking yourself what do you truly need and want, and go from there. Status isn't a valid reason in my mind for buying something ridiculous (regardless of what ridiculous means in your world). However, many people disagree. Status is their primary motivator. Thanks for the comment 🙂
Kind regards,
Shawn
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Shawn, One of the most compellilng reasons for purchasing a mcmansion is desire to impress. Ther remain many who believe more is better, and more than that is the best. Count me in the "less is better" camp.
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Hello Barb,
I agree that for many purchasers of McMansions status is their primary motivator. Interestingly, I wouldn't be surprised in the slightest that if the purchasers were surveyed, they would have a net worth that is lower than their non-McMansion dwelling neighbors. It is just quite difficult to build substantial net worth while maintaining a high consumption lifestyle.
Kind Regards,
Shawn
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Your last comment nailed it. "it is quite difficult to build a substantial net worth while maintaining a high consumption lifestyle". I would bet many of the people who bought into the mcmansions, don't have a clue what their net worth is and probably don't want to know.
Personally, I need to remember this when I visit friends who might not live in mcmansions, but live in homes quite a bit bigger than our 1800 sq ft home. I can very easily get house envy, but always rein it in when I run the numbers of what it would cost to buy and live in a larger home.
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I am always surprised by how many people fail to run the numbers of home ownership as well as acquisition. For example, just because you can get approved for a mortgage doesn't mean that living in such a home isn't financially detrimental. Thanks for the comment 🙂
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Shawn, I think there are studies which support the thesis that in general, those with the flashiest toys do not have the highest net worth.
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Hello Barb,
I have definitely seen some data to support it (mostly survey though), but it also just make sense. For most people, money is finite. Either you choose to go broke to look good or you choose to build wealth…. or some gradation in between. Balancing priorities is key though 🙂
Hello, that's a really good point! It is easy to justify why we must have certainly luxuries. Anyone articulate enough can even make their point of view sound rationale. That doesn't change the facts though: your budget hasn't increased and you bought that house at an inflated price. Thanks for the comment!
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Great article! Another reason people bought McMansions is that they could borrow ridiculous amounts of mortgage money and thought that meant they could afford them. A fellow I work with (and I am the accounting person, so I know), who was making $50,000 a year, had a stay at home wife, one child and another on the way, qualified for a $350,000 mortgage easily. There was no way he could afford that house and feed his family. He also happened to confidently tell me, "You can never lose money in real estate." You can guess what happened.
My mother, who was born during the Depression, says that the McMansions will become what the big Victorian mansions became during the 30's – rooming houses. I suspect she may be right.
Hey Kris, Thanks for the comment. Easy money (lenient lending standards) surely contributed to the McMansions. Banks didn't care too much because they could resell those mortgage back securities to lesser banks. People, like you quoted thought that you can never lose in real estate.
I read that people are finding very creative uses for these homes including using them to house businesses with living quarters. I guess if you have this huge square footage, why not put it to good use?
Thanks for the history lesson with respect to the big Victorian mansions. History does have a tendency to repeat itself, when we fell to learn it's lessons. It all really is quite tragic.
Kind Regards,
Shawn
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I am planning to sell one of my flat bought in 2004 on home loan. I have claimed for tax deduction for 4 years already. I have a seen a clause in the yearly bank statement that i will not be entitled for tax saving on home loan if flat is sold before 5 years. Is it true?
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