The Premature Obituary of the McMansion: Unfortunate Architecture Aside, Hideous Homes Still Have Value

McMansionHell

Is the McMansion dead? To find out why “McMansion” is a pejorative in the architecture world, check out this hilarious Tumblr blog, McMansion Hell. (Image: McMansion Hell)

Recently, Trulia analyzed data from 2006 to 2016 for the 100 largest metros, seeking to understand the new home premium.  They dubbed recently built (2001-2007) 3,000- to 5,000-square-foot homes as McMansions and compared them to homes outside that age and square footage range.

It’s worth noting that for all the tiny house rage, average home sizes are at historic highs (after a short-lived retreat during the recession). There was a tiny decline in the first half of 2016 (from 2,658 to 2,616 square feet) that’s being attributed to a shift towards more entry-level housing. This partly explains why Trulia defined McMansions as being as much as double the national average in size.Trulia McMansion 1

 

Using highly selective data from Trulia, news outlets trumpeted the death of the McMansion. The Chicago Tribune blared, “The day of the McMansion has come and gone” complete with misty-eyed millionaires having to take a loss on their McMansion (because they’d bought another one). Meanwhile CNBC hailed, “’Death of the ‘McMansion’: Era of Huge Homes Is Over.” Even The Dallas Morning News reprinted a Bloomberg article titled, “Once a booming real estate trend, McMansions now a bad investment.”

These outlets (and many more) pinned their ideas on Trulia’s research that seemed to show that, much like new cars losing value the minute they’re driven off the lot, so too did new homes.  Or did they?

First, Trulia’s research spanned a decade from 2006 to 2016, and yet the media was only talking about the five years between 2012 to 2016.  The reason is because, as we all remember, in 2012 the market was at its pit for all types of housing.  In not highlighting the entire decade, readers are unaware that as the recession barreled on from 2006 to 2012, prices for smaller homes had tumbled more than larger, more expensive homes (because the wealthy never lose as much as the non-wealthy). This means that the price difference between McMansion and non-McMansion was greatest in 2012 and resulted in the highest percentage gap.

Put another way, cherry-picking these years assured the most media “bang” for click-bait.  It uses a high water mark as a baseline (hardly sound research).  After all, it’s not a drought just because the flood waters receded.

The data also showed by 2016, as 2012’s high water mark receded, the difference between McMansion and non-McMansion had tightened almost everywhere.  In short, the non-McMansion homes that fell the most pre-2012 appreciated faster from 2012 to 2016 than McMansions (which hadn’t fallen as far).

For example in bubbly Florida, Fort Lauderdale shows that in 2006 people paid 176 percent more for a McMansion compared to other types of homes. That McMansion premium grew to 274 percent by 2012. All hail the McMansion, right?  Not so fast.

From 2006 to 2012, McMansions dropped 40 percent in price while non-McMansions fell 56 percent.  See what I mean?  The 176 to 274 delta is created because the actual prices for one type of housing changed at a vastly different rate than the other.  In Fort Lauderdale, if you purchased a McMansion in 2006, by 2012, you lost less than if you’d bought a non-McMansion.

However …

Since 2012, both have appreciated (still way off 2006 prices) but the non-McMansions have appreciated at a higher rate resulting in a tighter delta between McMansion and non-McMansion of 190 percent.  This has gone a long way to restoring the 2006 price delta of 176 percent.  In other words, the bubble is passing.

In largely bubble-less Texas, it’s a different, calmer story. We never had a glut of properties, never a bubble of prices.  We had a housing recession based more on a nationwide tightening of mortgage monies available. We had our foreclosures too, but we weren’t Phoenix or Las Vegas.

In 2016 Dallas, the difference between McMansions and non-McMansions is the smallest it’s been in 10 years. That’s because starter housing is flying off the shelves while more expensive property is stagnating (no shock there). The “flying” is causing those home prices to increase faster. Prices for McMansions have increased 24 percent since 2012 versus a 32 percent rise for non-McMansions. This translates into a shrinking delta between the two housing classes.

In Fort Worth, appreciation is more closely matched. McMansions increased by 21 percent in price since 2012 while non-McMansions rose 26 percent. Their delta has shrunk, but not as far as Dallas.

In Austin, it’s crazy town. The difference in prices between McMansion and non-McMansion is less than double at just 80 percent more for a McMansion. That’s because non-McMansion prices have risen 30 percent since 2012 while McMansions have only bumped 19 percent.  I attribute this to booming population growth and the gentrification of cheaper parts of the city like East Austin.

So why did the media herald the death of the McMansion?  I think equal parts wishful thinking and lazy illiteracy to service headline grabbing.  Trulia themselves say that the McMansion isn’t dead. They point out that spanking new homes can command a 20 percent premium over “used” homes.

Also, remember that even at 10 to 15 years old, many of these beige elephantine McMansions with their cherry wood, orange peel walls and antique bronze are simply not fashionable to today’s buyers. The 20 percent uplift for a new home offsets the perceived renovations for an even slightly older home.

It’s also worth noting that the term McMansion often describes poorly built homes of mediocre architectural appeal that are likely to age poorly when compared to better built older (or at least brand new) homes.

Remember:  High-rises, HOAs and renovation are my beat. But I also appreciate modern and historical architecture balanced against the YIMBY movement.  If you’re interested in hosting a Candysdirt.com Staff Meeting event, I’m your guy. In 2016, my writing was recognized with Bronze and Silver awards from the National Association of Real Estate Editors.  Have a story to tell or a marriage proposal to make?  Shoot me an email sharewithjon@candysdirt.com.

4 Comment

  • Let’s run the same search criteria in our own beloved Park Cities and North Dallas (Area 11):
    Average Sale Price:
    2010: $885,087 Park Cities; $971,177 North Dallas
    2012: $960,679; $879,735
    2014: $1,075,149; $1,156,633
    2016: $1,281,654; $1,104,467

    • Exactly. And if you ran the numbers for low-middle income areas I bet you’d find that while Park Cities and North Dallas have appreciated, as a percentage gain, the low-mid areas would have appreciated more as a percentage. Big housing isn’t going anywhere.

  • Explains why the downzoning unfortunates at Regent’s Park (Gillespie & Congress) are lashing out at their neighbors in a desperate attempt to defend the value of the irredeemable schlock that they inhabit.