The Return of the McMansion: What Investors Need to Know

Just a few years ago, everyone was talking about how the McMansion trend – large luxury homes that are ostentatious and over the top –was going out of …

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Just a few years ago, everyone was talking about how the McMansion trend – large luxury homes that are ostentatious and over the top –was going out of style. However, what we’ve learned over the past few months is that this decline in McMansion building was simply a byproduct of the recession. As the economy continues to improve, so does the average square footage of newly constructed homes across the country. As an investor, this is something to keep an eye on. 

The McMansion Resurgence

We’ve been told people are sick of McMansions. We’ve been told they’re overpriced and no longer suitable for the neighborhoods they’re built in. We’ve also been told that the construction of new McMansions is a thing of the past. Could the marketplace be denying all of these so-called truths?

Try telling real estate professionals in Dallas, Texas, that McMansions are no longer highly sought after. In fact, not only are McMansions experiencing a relatively short life on the market, but so are mansions themselves. At any given time, you can find properties ranging from the low-millions to as much as $20-$30 million-plus.

Try telling real estate professionals in other large metro areas that McMansions are dead. Cities like Atlanta, Houston, and even Nashville are seeing the value of existing McMansions rise, as well as the construction of new ones. And while industry experts have been hesitant to call this a resurgence, there has been enough sustained growth that it’s time to call it what it is.

A Look at the Numbers

According to data from the U.S. Census Bureau, the size of new American homes has been on the rise since hitting a low point in late 2009 when they bottomed out at roughly 2,050 square feet. By the end of 2011, that average was up to more than 2,200 square feet. It continued to climb in 2012, 2013, and 2014, ending at approximately 2,300, 2,350, and 2,450 square feet respectively. Currently we’re right around an average of 2,500 square feet for newly constructed homes in America.

“Back in 2011, many observers were predicting the end of the McMansion era. But five years into the recovery that barely feels like one, homebuilders have happily returned to the old ways of building bigger homes in ever farther-flung areas,” Christopher Ingraham of the Washington Post wrote in February of last year. “The recession was supposed to usher in a return to the dense, urban and walkable. Instead, the opposite has happened.”

Reasons for Growth

As an investor, the question is, “Will home sizes continue to rise, or are we reaching a bubble?” If you ask the experts, they believe the trajectory is firmly pointed upwards for a number of years to come.

One of the primary reasons is that as the economy recovers and families have had some time to replenish their savings accounts, they’re more inclined to invest that money into real estate. We’re also beginning to see a trend of young millennials moving to the suburbs where things are less congested and lots are bigger.

Furthermore, baby boomers are retiring and deciding to put their money to use with larger homes that can be used by children, grandchildren, and their families. For example, in Boston, McMansion buyers are traditionally wealthy couples in their 40s and 50s who are purchasing their second or third homes.

Potential for Investments

As a real estate investor, it’s important that you stay up to date on the latest trends and direction of the marketplace. While we were told for years that McMansions were dead, it appears that new construction is getting bigger and bigger. Could this signal a major investment opportunity, or will we eventually go back to the levels we saw during the recession? That’s the answer everyone wants to know.

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