The Wall Street Journal
The McMansion Glut
America's love affair with sprawling homes is showing signs of waning as the real-estate market softens and aging boomers seek smaller houses. Our reporter on nervous sellers and the growing supply of 'faux chateaux.'
By JUNE FLETCHER
June 16, 2006; Page W1
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The golden age of McMansions may be coming to an end. These oversized homes -- characterized by sprawling layouts on small lots, and built in cookie-cutter style by big developers -- fueled much of the housing boom. But thanks to rising energy and mortgage costs, shrinking families and a growing number of retirement-age baby boomers set on downsizing, there are signs of an emerging glut.
Interviews with dozens of real-estate agents, sellers, developers and housing economists turn up signs across the country. In an affluent Dallas ZIP Code (75205), where half the houses have four bedrooms or more, home sales fell 31% in the first quarter compared with the previous quarter. But sales rose 23% in a nearby ZIP Code (75206) where 7% of houses have that many bedrooms. In Santa Fe, N.M., homes in the 2,000-square-foot range sell within weeks, while larger ones languish for months, says broker Pat French. In the Boston metro area, sales of homes with four or more bedrooms were flat in the first quarter from a year earlier; sales of homes with three bedrooms or fewer rose 14%. New Jersey appraiser Jeffrey Otteau says the inventory level statewide for large, $1 million-plus houses stands at 13 months, more than twice the state's overall average of six months.
There is no formal definition of what constitutes a McMansion. (Some would say it's any home bigger and showier than your own.) One broadly accepted definition, used for this article, is a house larger than 5,000 square feet -- about double the national average -- with four or more bedrooms that is built cheek by jowl with similar houses. Most have been erected since the mid-1980s, when major developers such as Toll Brothers and K. Hovnanian Homes began to chase couples who wanted more space -- and luxury -- than they had when they were kids. These houses often boast grand, two-story entryways, three-car garages, double-height family rooms and master-bedroom "suites" equipped with sitting areas and whirlpool tubs. Developers market the homes under names such as the Grand Michelangelo, Hemingway and Hibiscus -- while detractors have dubbed them "garage mahals," "faux chateaux" or "tract castles."
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Now, some boomers in their late 50s are counting on selling their huge houses to help fund retirement. Yet a number of factors are weighing down demand. With the rise in home heating and cooling costs, McMansions are increasingly expensive to maintain. Nationwide, electricity rates have risen 12% over the past three years, while the price of natural gas for heating has risen 43% in the same period, according to the U.S. Energy Information Administration. That means it can cost $5,000 a year or more to heat and cool a 5,000-square-foot house in a city such as Farmington, Conn., according to Connecticut Light & Power Co. Meantime, the jump in interest rates has put the cost of a big house out of more people's reach. With 30-year mortgages at 6.2% yesterday, a $700,000 loan costs about $4,300 a month, up from $3,900 when rates were 5.28% in June 2003, according to Bankrate.com. "The young people coming up don't have the means to absorb these big houses," says Mr. Otteau, the New Jersey appraiser.
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Already, the McMansion oversupply is acute in places like Loudoun County, Va. In the fast-growing area northwest of Washington, D.C., thousands of hulking, red-brick colonials sprouted over the past 10 years on quarter-acre lots that had been carved from farmland and woods. In May, 4,719 houses were for sale, more than three times the year-earlier level. The number of sales dropped 39% to 484 in the month, and the number of days a home remained on the market lengthened to 70 from 14. "Sellers are dying out there," says local real-estate broker Michele Stash... For anti-McMansion activists, who hate to see big homes supplant smaller "teardowns" in established neighborhoods, a decline in demand may be good news. Homeowners in some areas have successfully lobbied for laws designed to rein in the light-and-view-blocking monsters: Last year, Arlington County, Va., limited home footprints to no more than 30% of a lot, while Wood-Ridge, N.J., recently said homes could take up no more than 55% of a lot.
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