Back to big: McMansions driving new-home sales

Source: SmartMoney

The rise in new home sales is being driven in part by demand for the kind of larger and more luxurious custom-built houses that had fallen out of favor in recent years: so-called McMansions. Data released on Wednesday shows that sales of newly built homes rose 3.3% in April from a month prior and 9.9% from a year ago. While the figures do not disclose the size of these new homes, home builders credited the McMansion side of the spectrum. That’s a reversal from recent trends: During the recession the size of homes got smaller, shrinking 3.4% to 2,382 square feet, according to the US Census. But last year that size jumped 5.2% to 2,505 – the largest in at least four years. In many regions of the country, homes are even larger. Home builders say the trend toward larger new homes picked up more this year. Michael Villane, president of Lead Dog Builders, a custom home builder in Rumson, N.J., says he’s currently building homes with sticker prices of $1.5 to $4 million, up from the $1.3 to $1.5 million his clients were commissioning a year ago. While the average size of homes in the region is 3,500 to 5,500 square feet, he says the orders he’s received this year are for 7,000 plus-square feet homes. Though there’s no official definition of the word, many define McMansions as new homes larger than 3,000 square feet. In some cases, home builders are enlarging homes even if clients don’t ask for it. Michael Dubb, CEO and president of The Beechwood Organization, a New York-based home building company, says his firm is building houses with larger kitchens, higher ceilings, and overall more spacious rooms in an attempt to appeal to buyers who might be on the fence about buying a new home. By building bigger without raising the price, he says, the company is hoping to increase its sales. (He says they’re not downgrading quality, but rather cutting into their profits in order to make more sales.) In addition to bigger homes, builders say custom homes as a whole are becoming more popular. According to the most recent data available from the National Association of Home Builders, custom homes accounted for nearly 30% of all housing starts in 2011. That’s up from just 19% during the building peak in 2005. “Buyers are putting a lot more attention to detail – they’re not just buying a big box,” says Villane. So far this year, he says clients’ requests have become more customized to include crown molding, built-in microwaves, and double ovens. To be sure, the total number of custom-built homes is lower than it was during the peak of the housing boom. But because smaller home projects have plummeted even more, these high-end homes now account for a larger share of building overall, says Steve Melman, director of economic services at the National Association of Home Builders. Home builders typically rely on high-income buyers to get through downturns, he says. Requests for large new homes come at a challenging time for the overall new home market. New home sales hit a 51-year low of 307,000 last year, according to the NAHB. That figure is expected to jump 18% this year, but it would still be way off its peak of 1.3 million homes in 2005. Experts say high-income buyers don’t have to deal with the borrowing headaches the average buyer encounters. They’re less likely to need a mortgage, and those who do tend to have the high credit scores and sizable down payments needed to qualify, says Jack McCabe, an independent housing analyst in Deerfield Beach, Fla. Wealthy buyers are also more likely to pass other hurdles, like low appraisals, which have been derailing new home sales. (Appraisers have been pricing many homes at values below the cost of construction.)

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