The End of the McMansion? An Economist’s Perspective.

I have read several articles regarding this topic in the past several weeks. Trey Langford provided his Top Ten Reasons to buy the right size home (as opposed to a McMansion) in his BuildIdaho.com blog on October 10th. It was also the subject of NAHB’s Chief Economist David Crowe’s article in the October edition of Builder magazine and it was the cover article in the November edition. Will the trend to smaller-sized homes persist?

Although he didn’t proclaim the end of the McMansion, Dr. Crowe, NAHB’s Chief Economist, believes that the trend to smaller homes may last longer than in past recoveries. He cites the fact that none of the previous recessions were preceded by the significant rise and subsequent fall of home values that we experienced from 2004 through 2009. As a result, it will take existing homeowners who want to purchase new homes longer to build up the equity needed to roll over into a new home. While these existing homeowners are waiting to regain equity, first-time home buyers who typically buy smaller homes
will continue to account for a larger than normal percentage of home buyers.

Although house prices will eventually recover and housing equity will grow, many potential home buyers will remember the declines in house prices over the last two years and will be more motivated to purchase because of actual need and less motivated to purchase because of expected appreciation. Also, due to the severity and length of this recession, home buyers are likely to be more cost conscious which should drive them to purchase smaller, more affordable homes.

Finally, home buyers are growing more concerned about energy cost which could drive them to smaller homes to as a way to reduce energy use.

Obviously, Dr. Crowe’s opinion on economic factors. But what about other factors, like changing demographics? I’ll discuss those next.

Chuck Miller GMB CGB CGP MIRM CMP MCSP CSP
President / Builder – Chuck Miller Construction Inc.
(208) 229-2553
chuck@chuckmillerconstruction.com

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