Big Homes Had Fallen Out of Favor—Then Came the Coronavirus Pandemic

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In recent years, Americans have been less interested in living in those sprawling McMansions in the suburbs, as people of all ages gravitated toward walkable urban neighborhoods. The prevailing wisdom: Who needs all that space, anyway? What does it matter if you have only 400 square feet of living space when you can just pop out of your condo or apartment and enjoy all the amenities of the city?  Fascination with tiny homes and micro-apartments grew, and experts predicted those supersized homes in the suburbs would struggle to find buyers.

Then the coronavirus pandemic hit. Suddenly, small homes felt very small.

Millions of Americans were confined to their homes with their families—all the time. With kids interrupting Zoom meetings with the boss, bedrooms pulling triple duty as offices and fitness centers, and dining rooms being repurposed as online schools, itty-bitty living spaces no longer seemed to work.

Instead, COVID-19 has made those boring big homes with large backyards hot again as folks are seeking enough space to accommodate being home around the clock, say real estate experts. An extra 300 square feet for a dedicated home office never sounded so good. So, are we looking at the return of the McMansion?

“The pandemic has been long enough and deep enough that it might bring a change in collective thinking toward bigger homes,” says Sonia Hirt, an urban planning and landscape architecture at the University of Georgia in Athens. “The suburban home that was so stereotypical and boring suddenly proved itself to have benefits we’ve completely forgotten about.”

The COVID-19 crisis has certainly led some city residents with means to trade their cramped apartments and condos for single-family homes in the burbs. But the virus isn’t the only factor at play. Record-low mortgage rates are also allowing buyers to afford more home for their budgets.

Before the public health crisis, the median size of an existing (previously lived in) home purchased was 2,060 square feet, according to the National Association of Realtors® 2020 Home Buyers and Sellers Generational Trends Report. Newly built single-family homes had a median 2,291 square feet in the first quarter of 2020, according to the National Association of Home Builders.

The pandemic is likely to boost those footprints, real estate experts say. After being cooped up for months, buyers and homeowners want to “tack 500 to 1,000 square feet on top of” their previous goal, says Chris Brown, principal architect at b Architecture Studio in Winchester, MA, outside of Boston.

Americans are seeking more space—but not McMansions

Americans may want more space, but that doesn’t mean the 5,000-square-foot McMansions of the 1980s and 1990s are back. Many folks don’t want to deal with the sticker price—or the upkeep.

Instead, millennials who remember the financial pain of the Great Recession are likely to make more reasonable trade-ups. They may go from an 800-square-foot condo to a 1,500-square-foot home, or sell their three-bedroom, 2,000-square-foot house and buy a five-bedroom, 3,000-square-foot abode.

Folks are also finding ways to repurpose the homes they already have, says Brown. An unfinished basement can become a fitness center, an attic could be transformed into a bedroom or play space with the addition of skylights and windows. Homeowners are also building additions, like offices.

“The market is not being driven by people looking for massive homes,” says Ken Perlman, managing principal at John Burns Real Estate Consulting. “It’s being driven by people looking for the right combination of functionality and price.”

Multigenerational families could drive demand for larger homes

Families may also need more space to accommodate adult relatives moving in because of the pandemic.

Many college students and 20-somethings are returning to the nest as colleges have closed and entry-level jobs have dried up. Meanwhile, many folks have pulled their vulnerable parents out of nursing homes or assisted-living facilities, which have been ravaged by COVID-19. All of those extra people need places to sleep.

“We’re going to see another bump in multigenerational living,” says Donna Butts, executive director of Generations United, a Washington, DC–based multigenerational advocacy organization.” By combining resources, they can afford a bigger house or a more comfortable lifestyle.”

It happened during the Great Recession, when the number of multigenerational households swelled by more than 10% from 2007 to 2011, according to a 2011 survey from Generations United.

Whether larger homes are just a passing fad or here to stay may depend on the length of the pandemic. When a vaccine is found and folks can go out and about again, these bigger homes may fall back out of favor. But if the crisis drags on for years, the change in housing preference could be more permanent.

“I don’t think the 5,000 square feet will be as fashionable and popular as it was in the ’80s and ’90s,” says professor Hirt. However, “there will be some shift.”

The post Big Homes Had Fallen Out of Favor—Then Came the Coronavirus Pandemic appeared first on Real Estate News & Insights | realtor.com®.

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New-Home Construction Slipped in February—Before the Coronavirus Even Became a Major Concern in the U.S.

New-home construction slipped in February — before the coronavirus even became a major concern in the U.S.

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The numbers: Builders started construction on new homes in the U.S. at a pace of 1.6 million in February, the Commerce Department said Wednesday. This represented a 1.5% decrease from an upwardly revised 1.62 million in January, but was 39% higher than a year ago.

Permitting activity for new homes, meanwhile, fell 5.5% from January’s 13-year high to a seasonally adjusted annual rate of 1.46 million. This figure is nonetheless 14% higher than a year ago.

Economists polled by MarketWatch had anticipated housing starts and building permits to have occurred at a 1.49 million rate and a 1.5 million rate respectively.

What happened: Declines in activity surrounding multifamily buildings drove the downturn in both housing starts and building permits.

For housing starts, multifamily construction fell 17%, but single-family home building actually increased 6.7% between January and February. Similarly, multifamily permits dipped 20.2%, while one-unit properties rose 1.7% and two-to-four unit properties rose 4.7%.

On a regional basis, all parts of the country saw overall declines in permitting, led by the Northeast, where permits dropped 25%.

The Northeast also experienced the biggest decline in new home construction, at 41.4%, followed by the West. Housing starts in the Midwest and the South actually increased between January and February.

Big picture: There have been two big drivers of home-builders’ ramped-up activity in recent months: Interest rates and the weather. Home-builder confidence has been sky-high thanks to low mortgage rates, as they have continued to stoke demand for housing. The decrease in rates has made it a more affordable proposition for many Americans to purchase a home, but with few existing homes on the market they have had to turn to new construction.

But weather has been another factor in the high rates at which builders have begun constructing new homes. Both December and January had fairly unseasonably warm weather, which provided greater opportunity to construction firms to start building.

“With higher-than-typical amounts of precipitation, starts running ahead of permits for the past two periods, and some lingering payback for December’s surge,” housing starts were bound to slip in February, BMO Capital Markets deputy chief economist Michael Gregory wrote Wednesday morning ahead of the housing starts data’s release.

This all could change soon though, with the COVID-19 coronavirus outbreak disrupting economic activity nationwide and forcing people to shelter at home.

What they’re saying: “The true economic effects of the virus on both buyers and builders has yet to be seen,” said Bill Banfield, executive vice president of capital markets at Quicken Loans.

Market reaction: LGI Homes, Lennar Corp. and Pulte  were all down in morning trading, after being downgraded by analysts at J.P. Morgan.

The Dow Jones Industrial Average and the S&P 500 also fell in Wednesday morning trading.

The post New-Home Construction Slipped in February—Before the Coronavirus Even Became a Major Concern in the U.S. appeared first on Real Estate News & Insights | realtor.com®.

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