McMansion redux: Big homes are back
If there’s a sweet spot in the real estate market, it may be catering to the desires of the 1 percent.
Homes 4,000 square feet or larger saw a sharp jump in sales last year, rising 30 percent from a year earlier, according to data from the U.S. Census Bureau. Meanwhile, sales of homes of fewer than 1,800 square feet barely budged from their year-earlier figures.
That’s shifting the new home market in favor of bigger, more expensive homes, catering to the tastes of Americans with higher incomes. The median size of new single-families homes reached almost 2,500 square feet last year, an all-time record, Census found. Much of that growth is coming from sales of ultra-big homes, the type of showpiece properties that sell for well above the median sale price of $232,500 for existing U.S. homes.
At the same time, that’s lifting the fortunes of builders such as Toll Brothers (TOL), which reported last month that their homes are now selling for an average of $855,000, or about $100,000 more than a year earlier.
While home sales are good for the economy, trouble spots are emerging, such as a lack of affordable inventory for first-time homebuyers. Millennials, the oldest of whom are in their mid-30s, may be interested in purchasing entry-level homes, but many are hobbled by student loans and rising rents, which makes it more difficult to save for a downpayment.
Given that homebuilders aren’t expanding construction of smaller homes at the same rate as larger properties, there may also be less inventory to choose from.
Millennials are renting for about six years before buying a property, compared with five years for young adults in 1980, according to finance site NerdWallet. The median income for millennials over the age of 25 is slightly more than $38,000, which may put the typical new home out of their financial reach.
The median sale price for new homes reached $321,1000 in April, a nearly 10 percent jump from the median price of $292,700 a year earlier, according to the Federal Reserve Bank of St. Louis.
Millennials are now more likely to live at home with their parents than in any other type of household, Pew Research Center said last month. About one-third of Americans ages 18 to 34 are still at home with their parents, more than those who are living with a spouse or partner in their own household.
The reasons? Partially a shift in societal norms away from marriage, compounded by stagnant wages that have hurt the prospects of some demographic groups, such as Americans without college degrees.
At the same time, workers who have college educations and are already solidly middle class are enjoying improving fortunes. The share of American households who have climbed into the upper-income bracket — defined as earning more than $125,000 for a family of three — jumped to 20 percent in 2014 from 17 percent in 2000.
Those are the types of buyers who are most likely to snap up those 4,000 square-foot new homes. They may even fork over more to add extras, like wetbars and media rooms. Given that Toll says the average buyer is adding an additional $134,000 in options and premiums, it appears that for some buyers, bigger can get even better.