This was guaranteed to happen, and did. Baby boomers and retirees built large, elaborate dream homes only to find that few people want to buy them.
Please consider a Growing Problem in Real Estate: Too Many Too Big Houses.
Large, high-end homes across the Sunbelt are sitting on the market, enduring deep price cuts to sell.
That is a far different picture than 15 years ago, when retirees were rushing to build elaborate, five or six-bedroom houses in warm climates, fueled in part by the easy credit of the real estate boom. Many baby boomers poured millions into these spacious homes, planning to live out their golden years in houses with all the bells and whistles.
Now, many boomers are discovering that these large, high-maintenance houses no longer fit their needs as they grow older, but younger people aren’t buying them.
Tastes—and access to credit—have shifted dramatically since the early 2000s. These days, buyers of all ages eschew the large, ornate houses built in those years in favor of smaller, more-modern looking alternatives, and prefer walkable areas to living miles from retail.
The problem is especially acute in areas with large clusters of retirees. In North Carolina’s Buncombe County, which draws retirees with its mild climate and Blue Ridge Mountain scenery, there are 34 homes priced over $2 million on the market, but only 16 sold in that price range in the past year, said Marilyn Wright, an agent at Premier Sotheby’s International Realty in Asheville.
The area around Scottsdale, Ariz., also popular with wealthy retirees, had 349 homes on the market at or above $3 million as of February 1—an all-time high, according to a Walt Danley Realty report. Homes built before 2012 are selling at steep discounts—sometimes almost 50%, and many owners end up selling for less than they paid to build their homes, said Walt Danley’s Dub Dellis.
Kiawah Island, a South Carolina beach community, currently has around 225 houses for sale, which amounts to a three- or four-year supply. Of those, the larger and more expensive homes are the hardest to sell, especially if they haven’t been renovated recently, according to local real-estate agent Pam Harrington.
The problem is expected to worsen in the 2020s, as more baby boomers across the country advance into their 70s and 80s, the age group where people typically exit homeownership due to poor health or death, said Dowell Myers, co-author of a 2018 Fannie Mae report, “The Coming Exodus of Older Homeowners.” Boomers currently own 32 million homes and account for two out of five homeowners in the country.
Not Just the South
It’s not just big houses across the Sunbelt. It’s big houses everywhere. If anything, I suspect it’s worse in the north. There is an exodus of people in high tax states like Illinois who want the hell out.
Already big homes were hard to sell. Now these progressive states are raising taxes.
Triple Whammy
- Millennials trapped in debt and cannot afford them
- Millennials wouldn’t buy them anyway because tastes have changed.
- Taxes are driving people away from states like Illinois
Good luck with that.
For the plight of Illinoisans, please consider Illinois’ Demographic Collapse: Get Out As Soon As You Can.
Mike “Mish” Shedlock
Data I see does not seem to agree. Kiawah Island – Median days – down 18% from 206 to 167 – median size from 1500 to 1418 – median per sq. ft. up from 463 to 475 – houses for sale – 67 vs 64 – so there are more smaller houses than a year ago.
Here, the thesis fits: Asheville, Buncombe County, North Carolina – houses for sale 600 vs 494 – median days – 94 vs 42 – and here, not so much – median house size – 1942 vs 2090 – – median per sq ft -225 vs 223 – so it’s smaller houses that are piling up again.
Scottsdale, Arizona – for sale – 2833 vs 2782 – median days – 67 vs 82 – median house size – 2872 vs 3088 – median per sq ft – 264 vs 259 – again, smaller houses, but here, selling faster.
I did a stint as a Realtor back in the 80’s. A bit of research showed the price pyramid in most housing markets. The higher end homes WILL ALWAYS sit on the market the longest if at FMV due to the simple fact that the number of buyers at that price level is small compared to the number of median priced home buyers. The other factor is if I have that much money to invest in housing why buy someone else’s mistake when I can make my own for the same price? I have lived the rule — Never own more than a $500k housing unit. (CA excepted, that would be a shack.)
Want a counter argument? McMansions that are properly positioned on some acreage would make a comeback in a economy down environment. Multigenerational homes are making a comeback only its advertised as ‘johnny lives in the basement’. The kids can’t scrape the money together for a down payment due to student loans. Nor can they start a family for the same reason without proper housing. Those kids that can afford housing are moving to the ‘burbs. The Boomers face an assisted living future they can’t afford. So the opportunity exits to do a mashup of a modern day Walton’s if you have a large enough home, er McMansion. If things got really bad you at least have the space to grow some food.
All of these posts are informative, accurate, and make sense. Add the Charlotte, N.C. metro market to the list of cities with large, expensive houses that ain’t selling right now. Ouch.
We sold a year ago to Californians who were so glad to get the hell out they thanked us for selling to them. We purchased a smaller new home. The buyers haven’t moved in yet and they are facing the cost of new roofs and new decking on a 22 year old home. My wife and I are sitting here discussing this downsizing and know we are very fortunate. We’re now on one level, no snow to plow, no firewood to split and stack, etc. our expenses are down by 50%. We are in good health and I continue to enjoy my work from my home office. Life is good. Regarding younger folks, our kids are doing well and what you would consider successful. Hard-working and conservative. They have no desire for a McMansion. They are interested in “experiences” and I agree with them. Tending to a large home on eight acres with trees, ponds and outbuildings in snow country turned into a pain in the you-know-what for both of us. Twenty years ago it was what we wanted and it was good for that period. We see this problem for many of our friends of our age, several of which have minor to serious health problems and need to sell, but aren’t having any luck even after large price reductions. Everyone is ok financially, but it is a lifestyle burden and we aren’t getting any younger.
What’s sad, is that after a century of debasement theft, which has left America virtually devoid of any competitive industry; people are now so indoctrinated into The Way of the Fed; that they find it somehow surprising that a manufactured good, which has been used and worn down for a decade or more, no longer costs what it did when it was brand new. Talk about layercake of idiocy upon idiocy upon ever more idiocy. It’s bloody mind numbing…
The break-up of United Technologies will eventually lead to exiting Connecticut. I believe there are some tax breaks over a period of time on the condition the company remains in Connecticut. So when Otis and Carrier are spun off, they technically are no longer United Technologies or under its control. Carrier is easier to relocate of the two because Otis has a several hundred foot tall test tower. Some municipalities would not want to clutter up their skyline. The test tower is near the end of its useful life, so accountants, are probably thinking find a lower tax location and build a new test facility. And when revenue is drying up, municipalities are more willing to build a tall tower well above the skyline.
There has already been an exodus of people from Connecticut over the past 20 years. But when potentially Carrier and Otis move out, there will be many executive mansions up for sale. Some executives are selling their homes now in order get the best price.
In the first sentence you call these people wealthy. They’re not. If they were wealthy, they’d cut their losses and get out. Most of them have no equity, ie, no wealth. That’s the real problem.
Housing prices are a function of where the credit cycle is. Throw in the changes to tax code and housing will no longer be best investment as it has been for a generation.
Melanie Griffith sells her Aspen Mountain home for about what she paid for it (accounting for inflation). Despite a massive marketing campaign that included her appearance and voiceover in a 30 second spot:
Helps to explain why this housing market correction is a top-down price correction. With major wealth inequality in the U.S. it’s no surprise we have a glut of luxury real estate. A great deal of this housing stock was likely an ego purchase, second home, getaway.
For average people who just want a decent place to live, buying a smaller home in their their desired location is a more rational choice. These huge luxury homes come with added maintenance, utilities and of course property taxes. Not exactly a plus if you are looking to retire and mitigated your living expenses.
Texas has plenty of these huge sheetrock palaces, monuments to the mantra that more is better. Unfortunately the appraisal district is more than happy to max out your assessment if you are a residential property owner.
Luxury million dollar homes are getting whacked here in DFW. Right now the action is at the margins because employment is still solid, but you can see it happening with individual properties. Imagine buying your palace last year for $1.2m and not being able to unload it for significantly less than the purchase price in one of the supposedly hottest markets in the country. This particular seller went through 2 agents in the last six months or so, now trying to unload it FSBO, still no takers. Looking at the floor plan, easy to see why it hasn’t sold, but this is what happens in a market correction. Buyers begin to scrutinize the defects in properties they were previously willing to overlook.
December was likely just a wake-up call. If we get a repeat of that scenario and support doesn’t hold it’s going to get REALLY interesting in the bid D where home values are still near record highs.
Recession? Maybe this time around, we can get rid of those predatory realtors.
And I can put in my own implants once I have had enough martinis to numb my gums….save a whole bunch of money that way too…..my realtor saved me nearly 40% of the sale price for a condo I was buying and now I know why. Had I worked alone…even with an inactive real estate associate license…..I would not have known what to do….but of course she had over 40 years of experience….Mary Melillo of Signature Realty in Delray Beach…..thank you Mary and I will always do business with you for as long as you continue to practice….experience is always better than no experience and so how many FSBO have that kind of experience….just think of the legal fees you save when the paperwork is filled out right and you know what you are buying and consent to that purchase because you know exactly what owning that home will cost you. This lawsuit is a class action that will result in legal fees for the lawyers who will make money every time a purchase or a sale of a property is contested after the fact. In french we call that being someone’s vache au lait….their milk cow….do lawyers ever harm their own potential future incomes? All in all you get what you pay for. Beware of Greeks bearing gifts..Sophocles (496 – 406 BC)
Nought from the Greeks towards me hath sped well.
So now I find that ancient proverb true,
Foes’ gifts are no gifts: profit bring they none..
Old housing advice: Buy the biggest house you can afford.
But with ever rising property taxes and utilities..
New housing advice: Buy the smallest house you can stand.
Buy the smallest house in the most expensive neighborhood that you could afford worked well through the years.
Some of those oversized houses can be divided into apartments. Although some of the more imaginative floor plans may complicate the project.
I seriously doubt the zoning and HOA rules will allow for subdividing McMansions into apartments.