Thursday, March 09, 2006

McMansions Get Thumbs Down

From the Star Ledger:

Homes Sweet Homes: Sizable questions

Real estate professionals said buyers should love the house they intend to buy, but also look around at the other houses on the block or down the road. Being king of the block isn't always the smartest move in the real estate world.

Big houses cost big money, both to buy and to maintain and just think of the landscape and utility bills.

And as investments, big houses aren't always that great either, which is something that will come as an immense comfort to your neighbors who look up longingly at your McMansion from behind the cheap white shades of their tiny three-bedroom Colonials.
...
Two years ago, Jeffrey Otteau, president of the Otteau Appraisal Group in East Brunswick that analyzes residential real estate trends, said his advice would be to "buy as much house as you can."

Not anymore. Times have changed.
...
"Essentially, you're taking on more debt, more financial burden and more risk in a market not likely to have the big payoff we've seen over the last five years," Otteau said.
...
"You always want the least expensive house on the market," he said. "You never want the largest and most expensive house."

----

I should note that I don't necessarily agree with the points made in this article. However, I'm posting it as further evidence of the change in market psychology.

Caveat Emptor!
Grim

17 Comments:

Blogger Richard said...

the bigger houses will not have the payoff they used to as most properties will be under valuation assault as market psychology switches. the 'mine is bigger than yours' attitude on the last several years seems to be waning.

looks like the peak season is getting into full swing. i'm getting alot of new listings every day now. what i'm noticing is the entry level properties (up to $700k) are sitting while the mid level properties ($1.1-$1.8 mil) are selling more briskly. i asked a broker friend of mine in summit what's happening and they said in the mid level price range you get more for your money than last year whereas the entry level you're getting less and while people have the money to buy at the entry level they don't think what's being offered is worth it. wow, some common sense finally!

3/09/2006 09:40:00 AM  
Anonymous Anonymous said...

Jim,

I think that's a widely held viewpoint. NJ is plagued with some of the most grotesque and gaudy displays of boilerplate architecture. McMansions have killed whatever charm New Jersey's homescape had left.

Here's another article worth commenting about:

http://realestate.msn.com/buying/Articlenewhome.aspx?cp-documentid=338165

FK

3/09/2006 09:42:00 AM  
Anonymous Rich In NorthNJ said...

Now I would LOVE to see the market drop and prices decline as much as anybody. But… I want to deal with reality and not what I WANT to happen.
I agree there are a lot of cheerleaders (some media, NAR, etc.) for continuing growth in prices and I also don’t believe the fundamentals are there for the past and current prices let alone increases for this year. But, I don’t think it’s not possible. I feel it is possible that this year we can see up to a 0% to 5% increase in price as the decline can be very slow. (Hopefully 2007 the decline in prices will increase as many ARM come due.)
That’s why I think we need to see these articles as well. It’s just a poll (opinion) of homeowners (who probably don’t have their finger on the pulse, as “they have theirs”) but everyone should be aware. We have many "cheerleaders" here as well going on what they "want to happen" and not what might actually happen.

http://tinyurl.com/qdd6e


Now through May should be very telling as to the future of this market for the year!
I’ve been tracking Bergen County’s active listings since Friday, March 3.
3/3: 3132
3/4: 3129
3/5: 3154
3/6: 3171
3/7: 3216
3/8: 3232
3/9: 3219 as of 11 AM EST

3/09/2006 11:16:00 AM  
Blogger grim said...

Rich,

Prices are falling, the NJAR fourth quarter '05 data provided hard evidence of that.

Northern NJ

2 Bedrooms or less
2005 Q3 - $286,400
2005 Q4 - $276,500

3 Bedrooms
2005 Q3 - $393,700
2005 Q4 - $381,200

4 Bedrooms or more
2005 Q3 - $597,300
2005 Q4 - $563,700

Assuming a 5% commission only, anyone that purchased a home in the second or third quarter of 2005 is now likely underwater.

For example. You paid $597,300 for a 4br in Q3 of '05. That home now sells for $563,700. Subtracting a 5% commission from that sales price leaves you with approx $536,000, a loss of roughly $60,000.

You'll likely see further price declines in the NJAR 2006 Q1 data, unfortunately you won't see those numbers until late July.

Caveat Emptor,
Grim

3/09/2006 11:47:00 AM  
Blogger grim said...

30-Year Mortgage Rates Jump to 3-Year High

Rates on 30-year mortgages jumped to the highest level in 3 1/2 years this week, driven higher by inflation worries in financial markets.

Mortgage giant Freddie Mac reported Thursday that rates on 30-year, fixed-rate mortgages averaged 6.37 percent this week, according to its weekly survey.

That was up sharply from a nationwide average of 6.24 percent and left 30-year rates at the highest level since they averaged 6.43 percent the week of Aug. 2, 2002.


grim

3/09/2006 12:51:00 PM  
Anonymous Anonymous said...

Question: If a house is under contract, is it reflected in the GSMLS stats? Is it removed?

3/09/2006 01:34:00 PM  
Anonymous Anonymous said...

Big houses cost big money, both to buy and to maintain and just think of the landscape and utility bills.

I have to agree with this one! In the mid-90's I had a big house that was about 80 years old cost me $20K-$25K a year. I am thankful I sold it. Just image what it would cost to heat that barn today!

I did not realize it (or give it much thought) when I purchased it, but six months later it became the money pit. Today, I prefer small and cozy.

3/09/2006 01:50:00 PM  
Anonymous Anonymous said...

Big houses cost big money, both to buy and to maintain and just think of the landscape and utility bills.

I have to agree with this one! In the mid-90's I had a big house that was about 80 years old cost me $20K-$25K a year. I am thankful I sold it. Just image what it would cost to heat that barn today!

I did not realize it (or give it much thought) when I purchased it, but six months later it became the money pit. Today, I prefer small and cozy.

3/09/2006 01:50:00 PM  
Anonymous Anonymous said...

More Americans are losing their homes

Risky borrowing is catching up with a number of homeowners across the U.S. Foreclosures rose 45% in January compared to a year ago, and experts only expect the pace to accelerate.

By Melinda Fulmer

http://realestate.msn.com/
buying/Articlenewhome.aspx
?cp-documentid=338165

3/09/2006 02:21:00 PM  
Anonymous Rich In NorthNJ said...

Grim,

Thanks for taking the time and comparing 2005 Q3 to Q4. I just hope the decline continues and doesn't level off at 2005 prices!

Anyway, the main point of my post is that I think everyone needs to keep an open eye, ear and mind to all opinions in order to come up with your own personal consensus. We all agree that the fundamentals (mostly, in my opinion median incomes) are not in place for these high prices. But I think it’s healthy to discuss contrarian views with sound analysis instead of criticism or blanket statements like “drinking the kool-aid” (actually one of my favorites). So we should be aware of these opposing views. It could be enough to hold the market up for a period of time, albeit a short one.
Take my above post for example; it’s an opinion poll by Bloomberg of home owners. Do I disagree with them? Yes. But what else can you take away from this article? I feel if these people HAD to sell it would be a long time before they would be willing to lower their price to reality. So this article helps reinforce what buyers have to deal with right now and shows we MAY not see large price declines for awhile longer.
I’m sure everyone is here for different reasons. I know I may make a WAY distant purchase of a home at a price point that’s comfortable to me even if prices may still decline. But this will be because I found a “home” that I will live in for a long time. Other’s may want to wait until the market hit’s what they believe is rock bottom. Other's might be here just to track sentiment. Other's might just be lonely... if so, well that's just really sad.

3/09/2006 03:37:00 PM  
Anonymous Rich In NorthNJ said...

Question: If a house is under contract, is it reflected in the GSMLS stats? Is it removed?

In which stat? It no longer shows as an active listing, but it does not show as a sale either. It's considered a pending home sale. Which was reported down this past Monday, by the way.

http://tinyurl.com/of5gc

"Mar 6, 2006 — WASHINGTON (Reuters) - Pending sales of U.S. homes slipped in January, according to trade group data released on Monday, extending a months-long slide as the housing market shows signs of moderation after a five-year rally. ....

A home sale is pending when the contract has been signed but the transaction has not closed. Pending sales will typically close within one or two months of contract signing.

After a run-up that shattered construction and sales records, the U.S. housing market has begun to slow as mortgage rates started to climb. The Pending Home Sales Index has steadily declined since hitting a record 128.2 in August."

3/09/2006 04:25:00 PM  
Anonymous Anonymous said...

I've seen builders rip down beautiful center hall colonials to build a giant version of a $200K tract home.

Sad that many architects today have no skills.

On the other hand, I've seen a giant tudor built from scratch last year that has all the architectural details of the 'old world.' Stunning. Big bucks though ($3M). The lot was large, so it supported the large home.

There must be a middle ground, where some of the charm built into older homes can be added to newer homes.

Some of the builders in Texas are really building nice stuff -- they make Toll Brothers homes look like absolute junk.

David Powers builds some amazing homes, tons of details, and priced from $400K to $600K and up.

http://www.davidpowershomes.com

3/09/2006 06:41:00 PM  
Anonymous Anonymous said...

"I have to agree with this one! In the mid-90's I had a big house that was about 80 years old cost me $20K-$25K a year. I am thankful I sold it. Just image what it would cost to heat that barn today!

I did not realize it (or give it much thought) when I purchased it, but six months later it became the money pit. Today, I prefer small and cozy."



Was the problem poor insulation, drafty windows, etc? I've been looking at older houses, and wonder if they'll be a headache...

3/09/2006 07:12:00 PM  
Anonymous Anonymous said...

Was the problem poor insulation, drafty windows, etc? I've been looking at older houses, and wonder if they'll be a headache...


Primarily a lack of insulation, plumbing, and updating electric throughout the house. I spent a lot of time fixing and not living. If you want to be a slave to your house, then buy an older home. Ironically, once I completed the house, we decided to move--it actually has worked out that way twice for me. Now, I just want to enjoy my home and my life.

3/09/2006 08:50:00 PM  
Anonymous Anonymous said...

Grim, the NY Times is onto you (from their walkthrough blog):

Think Small
Categories: General
There was a time when size mattered — buying big sent a message to the world (or at least the neighborhood) that you were wealthy and powerful. Apparently, it may now send the message that you are just taking on too much debt.

In what the blogger at “Northern New Jersey Real Estate Bubble” (not winning prizes for original title) sees as a sign of the times, this excerpt from the Star-Ledger in Newark quotes Jeffrey Otteau, president of the Otteau Appraisal Group in East Brunswick:

“Essentially, you’re taking on more debt, more financial burden and more risk in a market not likely to have the big payoff we’ve seen over the last five years,” Otteau said.
“You always want the least expensive house on the market,” he said. “You never want the largest and most expensive house.”

Hmm. Can’t imagine your average real estate agent giving you advice that blunt.

–MOTOKO RICH

3/10/2006 08:46:00 AM  
Anonymous Anonymous said...

Grim
11:46 post is most important keep these things coming. This gives the real pulse of the market.

3/10/2006 09:30:00 AM  
Blogger lisoosh said...

Friend of my husbands just sold his McMansion for $750k, bought a nice townhouse with cash (doesn't care if it drops in value) and consolodated his business. Is saving big bucks, couldn't be happier.

3/10/2006 10:55:00 AM  

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