Buyer Beware: Today’s McMansion Rebound is Tomorrow’s White Elephant

The investment credo is “buy low and sell high.” The point is to do the opposite of what the flock are doing. Don’t buy into a trend – no, poke restaurants are not the next McDonald’s, they’re tomorrow’s ramen.  It’s with this in mind that I read a Realtor.com story about COVID-19 buyers seeking out larger homes.

I’ve written about post-COVID upsizing before, noting that many work-from-home situations will become permanent or at least semi-permanent. Do you need an extra bedroom for every work-from-homer? Likely.  Might you want some outdoor space or a pool? Maybe. Unfortunately, that’s not the trend Realtor.com was writing about.

No, they’re calling out the COVID-19 trend of wealthy homebuyers in already substantial McMansions now snapping up 10,000-plus-square-foot McMcMansions with acreage. They cite years-on-market white elephant listings that are being pursued with a vengeance (OK, fear). This is a reversal of the luxury trend towards more manageable but luxe housing.

This trend is a direct reaction to social/family distancing and the fear-driven irrational need for multi-generational families to be contained in Swiss Army knife homes that cater to every need provided by the outside world – essentially aboveground bunkers without the military-chic bunkbeds. They even say that “space for classrooms” is a thing.

It’s nuts. It’s fear.

If you shouldn’t make major decisions for a period of months after a life-changing event, do you think you should be making one during said event?

Has any event in the past century resulted in enough change to permanently change the way people lived?  No. Sure, average home size got bigger, but the outside world remained quite important.  Buying acreage to replace a public park is an expensive short-term fix. As state re-openings (and resulting spikes in cases) show, once the shackles are off, people are eager to return to normal.

In 2014-2015, the average new single-family home topped out at 2,660-ish square feet before dropping to 2,498 in 2019.  In 1920 it was 1,048 square feet – essentially 2.5 homes in 1920 equal a single home today. But that’s not the real story. That 1920 house had 4.33 people in it equating to 242 square feet per person. Meanwhile in 2019, a home only had 2.52 occupants resulting in 992 square feet per person. Space per person quadrupled during a time when occupancy dropped by 42 percent. Birth control brought prosperity reflected in larger, emptier homes. (Not throwing any rocks, I live alone in 2,500 square feet.)

Will COVID-19 result in average new home size rebounding to (or beyond) 2014-2015 levels? Maybe. Will that trend last? Doubtful. For average buyers, wages will stanch any sustained growth in home sizes as affordability outweighs size for size’s sake.

The wealthy always have less financial considerations. However, buying a home that required a pandemic to shift it will likely need another one to sell it again – or take a huge loss.

Look Back Before Moving Forward

In gross terms, the past informs the future. When I looked for my Athena condo in 2012, I spreadsheeted the prior decades’ sales so I could see what values were years before the real estate bubble and ensuing Recession. I did this to know what the potential bounce-back was. It looked good for me and I bought.

Looking at the market today, I see the need for some to upsize in order to run their work lives from home. That’s a bedroom here and there. But even these situations may be less permanent than we imagine today.

For those wealthy fraidy-cats scouring the market for a 15,000-square-foot home with 10 bedrooms, gym, media room, classrooms, and offices, plus a pool, tennis court, and putting green, I wish you luck unloading it.

Your multigenerational fantasy of facing the end of the world together is just that. Your children and grandchildren have lives and will return to them and their visitation schedules soon enough. What’s happening now won’t last and it won’t happen again for probably decades. Meanwhile, you’ll be watching it’s a Wonderful Life in an empty media room while the housekeeper sweeps cobwebs from thousands of square feet of unused space (and you need a Valium just to open the utility bill).

Understand why a home lingers on the market.

If a home has been on the market for years, there’s a reason. Sometimes it’s price, but often it’s just useless. It’s up to buyers to fully understand why a home has been on the market for years, because sure enough, they will face the same issue when selling. Will reselling a cavernous home purchased during a fearful period require the same sorts of events in order to unload it? Or will you just lose hundreds of thousands (or millions) when you resell?

The amusing/amazing part of their story is the squeamishness of those buying these homes who don’t like them being called mansions (or the dreaded McMansion). Instead they’re seeing “large estate” pop up in listings. Somehow it feels less ostentatious (eye roll).

As for me, I need to stop reading Realtor.com stories.