Friday, February 17, 2012

How Big is Big Enough?

If there is one on-going issue of debate it is how large should a housing unit be? The pejorative term “McMansion” certainly says one thing and efficiency studio says another. But what is the right size? To be very honest, I’m not sure anyone knows.

The Home is the Man's/Woman's Castle
I was watching Dr. Zhivago last night and the issue of space became a political moment. As Zhivago returns with stolen wood for the fire, he is faced with the political reality of their home being seized by the Party to house the homeless. At that time, five people to one room was the standard residential model, if you didn’t like it, you could be shot. Nice, I can see the marketing brochure. Spacious one room studio, toilet near, heating optional, minimum four persons per unit.

We have come a long way since those days of the glorious revolution. I’m reminded of their excellent city planning concepts and the endless rows of concrete monoliths. I think at that point the density had been reduced to 3 people per room - progress.

Now it seems everyone is concerned about their neighbor’s house and how big it is. When my father bought his first home in 1955, it was about 850 square feet (for 4 people – Soviet statistics wanting) In the 1970s the average new home size was about 1500 square feet. By 2009 it was about 2600 square feet. It has lowered a bit, according to the National Association of Home Builders. Or has it? Almost one third of new homes have at least three baths, most had three car garages, half are now two stories (more I think to smaller lots than the need for height), and it goes without saying more bedrooms. All this while the average size of the family has gone down.

The prices are also down substantially from 2006 (well, duh), from about $305,000 to $274,400. More house, less money – it’s the market stupid. The trend says that bigger homes are in demand, and of course with the current historically low interest rates, why not. My planning mantra has been for years; “The home buyer wants the biggest house on the biggest lot they can afford.” Fairly simple.

Now as we burn through the housing overhang (insider speech for too many homes - not enough buyers), the trends we see in new homes will set the standards for the next ten years. In an article I read, this was attributable:“more to do with who was buying than with overall consumer tastes.” HERE  And how does the writer know that? These days I don’t believe the home buyers is that naïve and in fact I would say the opposite – and most are opportunists. Buy now (low), sell later (higher) – again, duh! But it is a leap of faith.

That home in Park Forest, Illinois that my father purchased (and added the first garage and fireplace on the street), is still there. It sells today for about $65,000 ($76.47 per square foot). The average home price today is $242,300 for about 2600 square feet ($93.20 per square foot). The “McMansion” with its 4000 square feet is selling in many markets for about $350,000 ($87.50 per square foot). It’s all in the square footage. A good website to get the overall thrust of home pricing since 1963 is HERE.

Or is this their castles?
Much of all this hub-bub about size is about envy and wealth (I won’t go into the other reasons where size is concerned and the same goes a Porsche). It’s also up there with the attack on success and wealth. When the buyer has options, and today he has more than in many past years, they will exercise those options and purchase more wisely that they have in the past. It’s a phase, I know we will return to the norm sometime in the future (for good or bad), but as always the home building industry is critical to the future growth of the US economy. It is one thing that can’t be outsourced (no matter how hard they’ve tried).

Stay tuned . . . .

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