McMansions Another Black Eye For Housing Market

The Wall Street Journal reports that so-called "McMansions" -- large houses mass produced by developers -- are going out of favor. This seems pretty logical, given the housing market's troubles. But there's reason to believe that this new trend might be more than just a phase. It's also another nail in the coffin for the U.S. real estate market, as smaller houses mean less profit.

The WSJ explains:

A survey released this month by the National Association of Home Builders shows that the average home built during the first quarter of 2009 was 2,335 square feet, down from 2,629 square feet during the second quarter of 2008. And 59% of builders surveyed in May by the trade association said that they are planning on building smaller homes in the coming year. Only 1% reported that they would be building bigger homes.

Then the article takes a strange turn, which doesn't seem right to me:

But don't write the obituary for McMansions just yet. Although mass-produced behemoths more than 3,000-square-feet in size have only been common (and commonly criticized), since the late '90s, home sizes have never been influenced by need alone. The builder association's report also points out that houses ballooned most--about 1,000 square feet--during the period between 1970 and 2008, when household size dropped from 3.11 to 2.57. Homes are getting smaller now because people feel poorer, but all that will change once the recession ends and consumer confidence is restored.

If the U.S. were just experiencing a short-term shock in the housing market, then I'd tend to agree. But some systematic changes are at hand as well. As baby boomers retire and their nests empty, they will take flight to smaller townhouses and condos. That should provide significant excess inventory for any new home buyers looking to purchase larger homes for raising a family. Oddly, the article even mentions this, but then ignores it:

Census shows that there are 77 million people in the "empty-nester" phase of life, from ages 45 to 64, and 61 million in the first-time buyer category, from 20 to 34.

That's bound to have the greatest effect, but it isn't the only thing to consider. Since being green is so en vogue these days, I would suspect that larger, energy sucking houses will also be out of style indefinitely. Unless the McMansions of the future are also designed with enough solar panels and wind turbines to power themselves, 20- to 30-somethings will not be interested. They also probably wouldn't be too eager to run up huge gas and electric bills, as energy costs increase.

I would suspect that houses will go the way of the automobile, where bigger is not better. Builders, like carmakers, will be forced to focus on producing smaller options in the days to come. Both supply and demand seem to indicate this direction for the foreseeable future of the housing market.