McMan­sions’ salad days are over

With ‘tiny’ in fash­ion, many buy­ers snub­bing the once-pop­u­lar homes as dated

Baltimore Sun - - BUSINESS MARYLAND - By Gail Mark­s­Jarvis

CHICAGO — When Dr. Kishin Ra­mani de­cided to sell his six-bed­room, Ge­or­gian-style home on a hal­facre lot in the Chicago sub­urb of Hins­dale three years ago, it never oc­curred to him that he’d be re­signed to ac­cept­ing far less than he paid when he bought the home in 2005.

Ra­mani was im­me­di­ately drawn to the home, built in 2003, be­cause “it was gor­geous and airy, with the high­est ceil­ings I’d seen.” A re­cent ap­praisal said it is worth $2.5 mil­lion. But af­ter years on the mar­ket and drop­ping the price three times to $1.99 mil­lion, he says he is ready to take a $600,000 loss on the home be­cause he has lit­tle choice.

He needs to move soon into a new home he had built for his wife, Dr. Su­man Kaur, his two chil­dren and his par­ents. Now, as he di­gests the loss he must take, he no­tices other home­own­ers go­ing through the same shock with homes known as McMan­sions. One neigh­bor re­cently marked his home down $750,000 to $1.95 mil­lion.

“There is noth­ing in the over­all hous­ing data that says the hous­ing mar­ket is this bad,” said Ra­mani’s real es­tate agent, Linda Fe­in­stein of Re/Max Sig­na­ture Homes. But while smaller, lower-priced homes have of­ten re­cov­ered sig­nif­i­cantly from the hous­ing crash that started in 2007, McMan­sions are slower to come back, she said.

The McMan­sion style, built be­tween 2001 and 2007 and av­er­ag­ing 3,000 to 5,000 square feet, lacks the The McMan­sion style, built be­tween 2001 and 2007 and av­er­ag­ing 3,000 to 5,000 square feet, lacks ap­peal to­day. ap­peal with to­day’s buy­ers com­pared with old vin­tage homes or large freshly built homes.

The re­al­iza­tion is es­pe­cially hard on home­own­ers try­ing to sell be­cause when they bought the gi­ant homes in the early 2000s, they thought of them as great in­vest­ments, Fe­in­stein said. Then, the idea was that big­ger was bet­ter be­cause prices pre­sum­ably would keep go­ing up.

Now, hous­ing an­a­lysts say the day of the McMan­sion has come and gone. An anal­y­sis just com­pleted by Tru­lia shows that the amount buy­ers are will­ing to pay for McMan­sions over other homes has fallen 26 per­cent in just four years. As homes in gen­eral have been re­gain­ing value, McMan­sions have been los­ing ap­peal in com­par­i­son to oth­ers as the gi­ants of the pre-crash years have aged.

The trend in the Chicago area has been sim­i­lar to the na­tional av­er­ages. Tru­lia econ­o­mist Ralph McLaugh­lin notes that just four years ago, when most McMan­sions weren’t yet 10 years old, peo­ple were will­ing to pay a higher premium to get the large houses than they are will­ing to pay now.

This year in Chicago, buy­ers have been will­ing to pay only a 118.9 per­cent premium for a McMan­sion com­pared with what they will pay for a non-McMan­sion.

In other words, McMan­sions, which should be more ex­pen­sive be­cause they are large, are sell­ing for slightly more than two times the av­er­age nonMcMan­sion. But in 2012, peo­ple were will­ing to spend far more for McMan­sions. Then, the premium was 145.5 per­cent over the typ­i­cal non-McMan­sion.

Na­tion­ally, the pre­mi­ums have dropped from 138 per­cent in 2012 to 117 per­cent re­cently. The de­clines have been ex­treme in some Flor­ida mar­kets, where pre­mi­ums have plunged more than 80 per­cent in ar­eas like Fort Lauderdale.

The me­dian price of a McMan­sion in the Chicago area was $598,000 in 2007, McLaugh­lin said. This year, it has been $485,000. The me­dian price of nonMcMan­sions has been $222,000, ac­cord­ing to Tru­lia.

As McMan­sions were be­ing built in the early 2000s, some ob­servers ques­tioned whether the homes — named af­ter the generic, mass-pro­duced ap­proach of fast food — would re­main de­sir­able. They were crit­i­cized for be­ing os­ten­ta­tious and cheaply built. They were of­ten stuffed onto sub­ur­ban lots that seemed too small, where the main struc­ture ap­peared to be dom­i­nated by the three-car garage.

Tar­geted at Gen­er­a­tion X in their home-buy­ing prime as they raised fam­i­lies, many of the buy­ers in their 30s and early 40s lost the homes in fore­clo­sure as val­ues plunged. Now, McLaugh­lin said, there are few buy­ers for the pricey homes in part be­cause of a change in de­mo­graph­ics.

Gen Xers have been scarred psy­cho­log­i­cally and fi­nan­cially from the crash in their home val­ues, short sales and fore­clo­sures, he said. With tar­nished credit scores, many who lost homes can’t af­ford to buy again.

Mean­while, mil­len­ni­als are not mar­ry­ing and hav­ing fam­i­lies at the rate of pre­vi­ous gen­er­a­tions, loans are tough to get, and rent­ing in cities is more pop­u­lar with sin­gle af­flu­ent 20-some­things than buy­ing large sub­ur­ban homes. Baby boomers tend to down­size rather than move into McMan­sions, McLaugh­lin said.

Still, peo­ple seek­ing size want homes that are built new rather than the dated McMan­sions that ap­pealed to early 2000s tastes, said Tim Schiller, an @prop­er­ties real es­tate agent who sells in Elmhurst.

“Peo­ple 35 to 45 with two ca­reers and 1.2 kids want big­ger, big­ger, big­ger,” he said. “But they want dark floors, gray walls and white kitchen cab­i­nets,” which are in con­trast to the McMan­sion style. For clients try­ing to sell McMan­sions, he tries to per­suade them first to redo the floors and cab­i­nets as well as the paint. Then, he said, they sell at higher prices.

Such an over­haul, how­ever, can ap­proach $100,000. And re­do­ing floors is hard to do when peo­ple live in the homes.

It’s tough for a per­son to stom­ach mak­ing such ex­pen­sive changes when they still ap­pear new, Fe­in­stein said. “A lot have beau­ti­ful cherry floors that were in vogue when built, but buy­ers now want floors darker or a rich brown.”

Gen­er­ally, buy­ers will pay 20 per­cent more for a new home than an older home, even when the older home is just five to 10 years old, McLaugh­lin said.

It isn’t just McMan­sions that are get­ting snubbed by home­buy­ers now. While low-priced homes are in de­mand and in short sup­ply on the mar­ket, lux­ury homes built years be­fore McMan­sions also are sell­ing slowly, and sell­ers are be­ing forced to cut their ask­ing prices.

SCOTT OL­SON/GETTY 2006

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