OK, we admit we might be a bit obsessed with this story. But if you can, bear with us one more time.
Here’s the most basic fact: The number of newly-built McMansions—single family homes of 4,000 square feet or larger—is down 43 percent since 2007. By any standard that’s a stunning decline. But because the market for smaller homes has declined even more, a commonly used but in this case misleading statistic—median home size—has floated upwards. That’s lead to some fundamentally flawed claims about the U.S. housing market.
Claims that the McMansion is back
Earlier this year, and again over the last week or two, several journalistic outlets—CityLab, Wonkblog, and the Minneapolis Star Tribune, among others—have written stories with the theme “McMansions are back.” Americans want, and are buying, bigger and bigger houses.
CityLab tells us “the economic recovery is super-sizing houses, and that “the housing crisis may have wiped out Lehman Brothers, Iceland, and the credit of home buyers across the nation. But it didn’t put a dent in the McMansion.”
The Boston Globe repeated CityLab’s analysis, saying: “the McMansion trend is thriving.”
The Minneapolis Star Tribune chimed in with: “After years of downsizing, big houses make a comeback.”
These stories are prompted by the Census Bureau’s publication of its annual report, “Characteristics of New Single-Family Houses Completed,” which dutifully reports the number of new single family homes built, by size, and by region of the country. The report focuses heavily on the median size, in square feet of new single family homes.
These outlets focus on the median home size and the share of newly-built homes that are McMansion-sized, and finding, correctly, that this percentage is increasing. The problem is that there are two ways to look at this, and in this case the median is misleading.
The number of McMansions is down substantially
From our point of view, what’s really important to the “McMansions are back” thesis is the actual number of these extra-large houses being built. And when you look at it that way, it turns out that they’re down 43 percent from the peak in 2006.
Single-family construction is still at a half-century low
The only reason that it looks like McMansions are “growing” is that the market for smaller single family homes remains deeply depressed. It’s important to keep in mind that the US housing market is still in worse shape today than at basically any other time in the previous half-century. The seven years since 2007 represent the seven worst years for housing production in the period since 1959. Excluding recession years, for the past 50 years, the US has built a minimum of about 4,000 new single family homes per million people; for the past seven years we’ve averaged about half that rate of construction. It’s really hard to overstate just how awful the single-family housing market still is in the United States. On a population-adjusted basis, we’re still building fewer single family houses now, several years out of the recession, than at the bottom of the recessions of 1970, 1980-82, 1990, and 2001.
The middle class has been pushed out of the single family home market
Just looking at the median size number misses this much larger point about housing markets. The trouble with this misleading median, as we explained in our March post on this subject, is that it is highly influenced by compositional effects. So that when the bottom drops out of the housing market, and Americans of typical means can no longer afford homes or qualify for mortgages, the construction of smaller, low-cost homes evaporates. Basically, in this very depressed housing market, the only people who can afford new homes (and qualify for mortgages, given much, much tighter underwriting standards) are high-income, high-wealth households. Which is why the market for big homes 4,000 square feet and larger is down a mere 43% from the peak, compared to a 60% decline for homes under 1,800 square feet.
The only way the “growth of McMansions” story holds up is if you believe that the composition of homebuyers in today’s very distressed market is representative of what Americans would buy if incomes and lending standards were at “normal” levels. If we were ever to get back to the 1.5 million annual housing start figure that we took for granted prior to 2007 (which seems an increasingly doubtful proposition), the growth in home buyers would come from those with lower and moderate incomes who would be far less likely to buy McMansions.
From our perspective, the big story about American single family homes is that, from micro-homes to McMansions, they’re all still in dire straits. For one of the country’s major industries to be at half its historic rate of production is a big deal, both for housing and the broader economy.
There’s no question that the median size of new single family homes is larger today than a few years ago. But as we’ve explained here, that actually signifies something very different about the housing market, and American’s demand for housing than conveyed by a quick look at the misleading median.