The End of the McMansion? The Impact of Rising Energy Costs

The median size of new homes in the U.S. increased from just over 1,500 square feet in 1973 (the first year the Census Bureau began tracking new home size) to 2,309 square feet at its peak in 2007.  The median size has declined almost 10% since then.  Will the trend to smaller-sized homes persist? Let’s consider the rising cost of energy.

The depth of the downturn may, for the first time in at least 40 years, reduce real median household incomes while the cost of energy is predicted to grow faster than incomes in the coming years.  Some experts argue that because smaller homes cost less to heat and cool, this alone should continue to support the trend to smaller homes.  I respectfully disagree.

I have been building energy-efficient homes since for the past 10 years.  Through programs like the U.S. Department of Energy’s Building America Program, we learned how to increase the energy-efficiency of any new home regardless of size by 30% to 50%.  Energy-efficiency is a major component of all green building programs and because of the increased emphasis on green building fueled in part by the International Energy Conservation Code® (IECC) and the growing popularity of programs like NAHB Green, building products manufacturers are improving their existing products and developing new products to improve the energy-efficiency of the homes being built.

But what about home buyers.  Based on my own experience over the past 10 years, while energy-efficiency might make it onto a homebuyers list of priorities, rarely is it at the top of the list.

In the spring of 2007, RCLCO (Robert Charles Lesser & Co., LLC) conducted a national survey of homeowners to gain an understanding of their attitudes toward green residential products. Among the questions asked were:

• Are “green” features and amenities important in your next home purchase?

• What “green” features and amenities are important to you in your next home purchase?

• Would you be willing to pay more for a “green” home, if so, how much?

The results of the survey revealed that only 21% of home buyers were interested in saving energy and realizing lower utility bills. Those in this group are most interested in energy-efficient and energy-saving features.  Among this 21% of home buyers, 75% indicated they would be willing to spend more for an energy-efficient home provided their investment paid them back over time.  If their investment might not pay them back over time, that percentage drops to 18%.

So I don’t think rising energy costs will drive the trend toward smaller homes.

Chuck Miller GMB   CGP   CGB   MIRM   CMP   MCSP   CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

www.chuckmillerconstruction.com

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The End of the McMansion? Changing Demographics – Immigrant Households

The median size of new homes in the U.S. increased from just over 1,500 square feet in 1973 (the first year the Census Bureau began tracking new home size) to 2,309 square feet at its peak in 2007. The median size has declined almost 10% since then. Will the trend to smaller-sized homes persist? Let’s consider Immigrant Households.

Regardless of the government’s actions with regard to immigration reform, immigrants and the children of immigrants born in the United States will continue to be a significant factor in household growth. The Joint Center for Housing Studies of Harvard University has released two new household projections based on the Census Bureau’s latest population projections. The high series assumes that net immigration rises from 1.1 million in 2005 to 1.5 million in 2020. The low series assumes only half that pace of immigration, as well as a small decline in headship rates among the native-born population. Under these assumptions, household growth in 2010–20 could total as much as 14.8 million or remain closer to 12.5 million (nearly the same as in 1995–2005). While white household growth will occur primarily among single-person households and the number of married couples with children will fall by nearly a million among whites, household growth among Hispanics and Asians will accelerate, increasing by more than a million. White household growth will slow sharply from 4.3 million to 3.3 million, and black household growth will slip from 2.4 million to about 2.2 million. Even under the low immigration assumptions, minorities will fuel 73 percent of household growth in 2010–20. Hispanic household growth will increase from 3.5 million in 1998–2008 to 4.5 million in 2010–20, while Asian household growth will increase from 1.5 million to 2.5 million. As a result, the minority share of households is projected to increase from 29 percent in 2005 to 35 percent in 2020. Asian Americans as a group are well educated and have the highest median income of all races. However, they only comprise 5 percent of the total U.S. population and, generally, minority households have lower average incomes and wealth. Thus, the increase in minority households could add significantly to the nation’s already widespread housing affordability challenges.

But the housing now occupied by many older white Baby Boomers will be well suited to the needs of these younger and generally larger minority households. These minority households with their lower incomes may be unable to afford these homes except that, as noted previously, the sell-off of existing McMansions by Baby-Boomers wishing to downsize could occur without regard for demand, resulting in excess supply. This excess supply and competition for buyers could create downward pressure on home prices and help improve affordability. While this excess supply of existing large homes and downward price pressure should limit the demand for new larger homes, it should also allow the Baby-Boomers to move creating demand for smaller new homes.

Chuck Miller GMB CGP CGB MIRM CMP MCSP CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553 www.chuckmillerconstruction.com

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The End of the McMansion? Changing Demographics – Household Types

The median size of new homes in the U.S. increased from just over 1,500 square feet in 1973 (the first year the Census Bureau began tracking new home size) to 2,309 square feet at its peak in 2007.  The median size has declined almost 10% since then.  Will the trend to smaller-sized homes persist? Let’s consider changes in household types.

Married couples without children (including empty-nesters) will be the fastest-growing household type.  Some demographers estimate that up to 80% of new households formed over the next 15 years will be child free as Baby Boomers become empty-nesters and career-driven Echo Boomers postpone marriage and kids.  As married couples without children become the home buying majority and families with kids become the home buying minority, the trend to smaller-sized homes should continue.

Married couples without children will be followed closely by single-person households.

Single women own almost twice as many homes as single men. In general, women’s incomes have increased over 60 percent in the past thirty years while men’s incomes have remained about the same. In fact, in areas where there is a largely educated population, wages of women in their 20’s are equal to or 120 percent of the wages of men of the same age. This has given single women greater purchasing power.  Generation X women are 70 percent more likely than early boomer women to have a college degree and are more likely to purchase a home while they are still single because they are more likely to wait longer to marry and have children. Generation Y women are the only significantly growing home-buying demographic group due primarily to their increasing education level and greater purchasing power.

Either as singles or divorcees, women are becoming heads of households in increasing numbers. This trend toward increasing numbers of women becoming heads of households and home buyers is expected to continue. 

This trend to single-person households and women as heads of households should also support the trend to smaller-sized homes. 

Chuck Miller GMB   CGP  CGB   MIRM   CMP   MCSP   CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

www.chuckmillerconstruction.com

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The End of the McMansion? Changing Demographics – Gen X and Gen Y

The median size of new homes in the U.S. increased from just over 1,500 square feet in 1973 (the first year the Census Bureau began tracking new home size) to 2,309 square feet at its peak in 2007. The median size has declined almost 10% since then. Will the trend to smaller-sized homes persist?

Generation X also referred to as the Baby-Bust generation, is much smaller than the Baby-Boomers. However, they currently comprise approximately 22 percent of the adult population. 53 percent of Gen X’ers are now parents and they buy 51 percent of all newly constructed homes. Gen X’ers may prefer larger homes. But they are faced with high home prices driven by decades of strong demand from the Baby Boomers. The housing boom of 2005-2007 created an affordability barrier for these buyers. This affordability barrier combined with the more stringent lending standards and fewer mortgage options resulting from the subprime mortgage fiasco should drive them to purchase smaller, more affordable homes than the Baby-Boomers.

 The largest group of potential new home buyers is Generation Y, also referred to as Echo Boomers or Millennials. Generation Y are the offspring of the Baby Boomers born between 1980 and 1995. Actually, the Echo Boomers are those born in the five year span between 1989 and 1993 when the number of births in the U.S. exceeded 4 million for the first time since 1964. Within the next 5 years, Generation Y, estimated to number about 74 million, will be entering the prime household formation and home buying ages of 25–44 replacing the far smaller Generation X and reversing declines in that age group created by the much smaller Baby-Bust generation. Gen Y’ers are entering their peak household formation years with more than five million more members than the Baby Boomers had in the 1970s. In fact, the number of Echo-Boomers aged 25–44 is expected to eclipse the number of Baby-Boomers when they were those same ages by more than 5.9 million. The 76 million Echo Boomers will be in the market for their first homes over the next 10 years. While boosting the quantity of homes demanded, the Echo-Boomers will likely enter the housing market with lower real incomes than people the same age did a decade ago. Many Gen Y’ers feel less economically secure than their parents, even though they may be earning more than their parents did at their age, because their money doesn’t buy as much. This will affect their attitudes toward home buying and ownership. These younger home buyers are showing a preference for less living space located in more compact, denser developments located closer to entertainment and recreation opportunities. With the number of Gen Y households projected to increase by between 2.0 million and 3.4 million, the demand for starter homes should remain strong for the next 10 years.

Next. household types and their impact on the trend to smaller-sized homes.

Chuck Miller GMB   CGP  CGB   MIRM   CMP   MCSP   CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

www.chuckmillerconstruction.com

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The End of the McMansion? Changing Demographics – the Baby Boomers

The median size of new homes in the U.S. increased from just over 1,500 square feet in 1973 (the first year the Census Bureau began tracking new home size) to 2,309 square feet at its peak in 2007.  The median size has declined almost 10% since then.  Will the trend to smaller-sized homes persist?  Let’s consider the changing demographics.

The U.S. population is undergoing some profound changes which will impact home buyer’s preferences and their home buying and selling habits.  These demographic trends include a large number of Baby Boomers – those born between 1946 and 1964 – entering retirement age, Generation X – those born between 1965 and 1980, and Generation Y – those born between 1980 and 1995 – entering their prime home buying years, more married couples without children, more women as heads of households, and increases in immigration.  These impending population shifts have important implications for housing demand over the next decade. And most tend to support the trend to smaller-sized homes.

Baby-Boomers represented the majority of home buyers during the past two recessions and recoveries. The first Baby-Boomers will reach the traditional retirement age of 65 in 2011.  Retirees historically buy fewer homes than younger people, but the sheer number of baby boomers means that they will be a major home buying group for years to come.  As their children leave home and establish their own households over the next couple of decades, many Baby-Boomers will be motivated to sell their homes and downsize.   This should increase the demand for smaller homes. 

However, the Baby-Boomers ability to downsize will depend on their ability to sell their existing homes.  Some industry experts believe that the existing supply of suburban large-lot homes may already be sufficient to meet the needs for the next twenty years in many markets. This oversupply of existing McMansions and downward pressure on home prices could result in more baby boomers choosing to remain in their homes.  Baby-Boomers ability to downsize will also depend on how much, and how quickly, they households can rebuild their recently decimated wealth.

In either case, it would appear that Baby-Boomers will not be responsible for reversing the trend to smaller-sized homes.

Next, Generation X and Generation Y and their impact on the trend to smaller-sized homes.

Chuck Miller GMB   CGP  CGB   MIRM   CMP   MCSP   CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

www.chuckmillerconstruction.com

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The End of the McMansion? An Economist’s Perspective.

I have read several articles regarding this topic in the past several weeks. Trey Langford provided his Top Ten Reasons to buy the right size home (as opposed to a McMansion) in his BuildIdaho.com blog on October 10th. It was also the subject of NAHB’s Chief Economist David Crowe’s article in the October edition of Builder magazine and it was the cover article in the November edition. Will the trend to smaller-sized homes persist?

Although he didn’t proclaim the end of the McMansion, Dr. Crowe, NAHB’s Chief Economist, believes that the trend to smaller homes may last longer than in past recoveries. He cites the fact that none of the previous recessions were preceded by the significant rise and subsequent fall of home values that we experienced from 2004 through 2009. As a result, it will take existing homeowners who want to purchase new homes longer to build up the equity needed to roll over into a new home. While these existing homeowners are waiting to regain equity, first-time home buyers who typically buy smaller homes
will continue to account for a larger than normal percentage of home buyers.

Although house prices will eventually recover and housing equity will grow, many potential home buyers will remember the declines in house prices over the last two years and will be more motivated to purchase because of actual need and less motivated to purchase because of expected appreciation. Also, due to the severity and length of this recession, home buyers are likely to be more cost conscious which should drive them to purchase smaller, more affordable homes.

Finally, home buyers are growing more concerned about energy cost which could drive them to smaller homes to as a way to reduce energy use.

Obviously, Dr. Crowe’s opinion on economic factors. But what about other factors, like changing demographics? I’ll discuss those next.

Chuck Miller GMB CGB CGP MIRM CMP MCSP CSP
President / Builder – Chuck Miller Construction Inc.
(208) 229-2553
chuck@chuckmillerconstruction.com

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The End of the McMansion?

The size of new homes in the U.S. increased about 20 square feet per year from 1973 (the first year the Census Bureau began tracking new home size). In 1973, the median size of a new single-family home in the U.S. was just over 1,500 square feet. The median size peaked in 2007 at 2,309 square feet, an increaseof 54%. The median size has declined almost 10% since then. Will the trend to smaller-sized homes persist?

Historically, the median size of new single-family homes declines during recessions. The median size of new homes declined 8.2% from 1978 to 1982. It declined slightly during the mild recession of 1990 – 1991. And it is has been declining since 2007.

Why? When the housing market declines, the percentage of first-time home buyers purchasing homes increases. First-time home buyers typically buy smaller homes and they don’t have an existing home to sell. During economic downturns, homeowners who want to purchase new homes typically have less equity to roll over into the new home and are also more cost conscious so they buy smaller homes.

But historically, the decline in size reverses itself once the economy recovers. So the question is “Will the current decline in the median size of new homes reverse itself as in past economic recoveries or have we experienced a fundamental shift.”

Before I share my thoughts, I would like to hear what you think.

Chuck Miller GMB CGP CGB MIRM CMP MCSP CSP
President / Builder – Chuck Miller Construction Inc.
(208) 229-2553
www.chuckmillerconstruction.com

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Builders, Realtors, lost your income? Worried about feeding yourself and your family? Read This.

Since the beginning of time, man has sought fruitlessly for the Fountain of Youth. An array of studies done on various mammals have shown that it is possible to promote longevity. Far and away the most effective method is restricting caloric intake by as much as 30 percent. In every case, as long as optimum nutritional requirements are met, average and maximum life expectancies are increased by an equal amount.

According to a paper just published in the prestigious journal Science, restricting food intake dramatically prolongs life in a close relative of man: the monkey. Conducted over 20 years, the study has found that only 20 percent of the calorically restricted animals have died, compared with 50 percent of those allowed to eat anything they want. Not only that, the restricted animals look much younger, have fewer physical disabilities and have a much lower prevalence of diabetes, heart disease and cancer. Their immune function is much better, and every marker that measures biologic age is improved. And interestingly, caloric restriction does not lead to significant differences in weight, as these animals handle calories much more efficiently.

The fact that restricting calories prolongs life expectancy in monkeys makes it highly likely that a similar effect occurs in humans.

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Eco-friendly Construction Leading to Healthier & Asbestos Free Homes

Are you considering purchasing a “fixer-upper” or remodeling your older existing home?  Here is something to consider.

Highly regarded throughout the 20th century, asbestos gained immense popularity because of its reluctance to conduct electricity and fire resistance qualities. Asbestos can appear in roof shingles, dry wall, attic insulation, popcorn ceilings, joint compounds and electrical wires.

Most homes built before 1980 could harvest asbestos or other environmental defected insulation methods. Those involved in home improvement, construction and remodeling scenarios should know that the implementation of eco-sustainable construction, green remodeling and green energy home solutions will play an important role in the transformation to a healthier and sustainable world.

According to the experts, the general rule of thumb is if the asbestos is in good shape, it’s posing no apparent risk. If it’s in bad shape, it could be a problem. In many situations, the best action in dealing with asbestos is no action at all. However, if an inspector deems removal necessary, it must be performed by a licensed abatement contractor who is trained in handling asbestos materials.  They must wear protective equipment such as masks and gloves to avoid any potential exposure.

When asbestos deteriorates and its fibers become airborne, it has the potential of causing severe lung ailments such as mesothelioma and asbestosis. Due to the fact most asbestos-related illness are usually diagnosed in late stages, sometimes 20 to 50 years after exposure, a mesothelioma prognosis is usually poor.

 

When involved in home improvement or remodeling, it is especially important to embark on the proper inspections to insure the safety of your clients, building workers and your reputation. Problems with asbestos in older buildings should be addressed in a rational manner. The removal of asbestos must be done by professional abatement contractors who are trained in handling toxic materials. Although not all asbestos is considered dangerous, it is best to leave any suspected materials un-disturbed until a professional can determine the best course of action.

 

Once the removal is complete, green alternatives should be considered, such as: cotton fiber, lcynene and cellulose. These green options have the same beneficial qualities as asbestos, minus the health deteriorating and toxic components.

 

The Department of Energy concluded that cooling and heating counts for up to 50-70 percent of all energy used in the average home in the U.S. In today’s state, this philosophy can also save natural resources. Using methods of sustainable construction allow for you and your family to live in a healthy and safe home, free of health corroding materials.

Chuck Miller GMB   CGB  CGP   MIRM   CMP   MCSP   CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

chuck@chuckmillerconstruction.com

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House Energy Bill Would Create National Building Code

 

Last month by a 33 to 25 vote, the House Energy and Commerce Committee approved legislation that would limit greenhouse-gas emissions and create a national building code that completely supplants the national model code development process.Prior to consideration of H.R. 2454, the American Clean Energy Security Act, NAHB sent a letter to members of the committee expressing the association’s concerns over the federal preemption of states’ rights to determine building codes.”NAHB is concerned that H.R. 2454 violates state and local rights to establish building codes and efficiency targets within their jurisdiction,” the letter said. “We regret that the committee did not consider NAHB’s testimony presented on April 24, 2009, and that we must oppose this legislation. H.R. 2454 is unnecessarily prescriptive, falls short of creating an effective energy policy that is constitutional and endangers housing affordability.”

The House committee approved new measures to establish a national energy code administered by the Department of Energy (DOE) that comes complete with enforcement penalties and civil action against builders and home owners occupying non-compliant homes and buildings.

NAHB, along with a handful of other real estate groups, supported an amendment offered by Rep. Steve Scalise (R-La.)  to strike the egregious language, but it failed on a party-line vote of 31 to 20.

The new building code provisions in HR. 2454 provide for the following:

  • New national energy efficiency targets taking effect on the date of the bill’s enactment that require states and localities to prove code compliance at 30% above the 2006 International Energy Conservation Code (IECC) level. By Jan. 1, 2014, the new target would be 50% above the 2006 IECC.  Between years 2017 and 2029, the code target increases 5% every three years until it reaches 75% above the 2006 IECC by 2029.
  • The Department of Energy secretary can set interim code targets, as long as they are higher and based on the life-cycle of the home, not on economics or the payback to consumers.
  • Within one year after the date of enactment, a national building code will be established. States are required to adopt the national code within one year from that date, they can adopt a state code that is equally stringent or they can adopt California’s Title 24 building code within two years.
  • If after one year the DOE doesn’t have a certification from a state that its code meets the targets, then the national energy code automatically becomes the applicable building code for that state or locality.
  • Federal violations will be levied against builders or owners of a building if they permit occupancy of a home or building that is out of compliance with the national energy targets, even if the state refuses to adopt the new code, because the national building code will be in effect regardless.
  • If a state or locality is out of compliance with the codes, it will not receive emission allowances under any cap and trade plan. Also, states will lose federal funding from other parts of the bill on a sliding scale for each year of non-compliance.
  • If a state or locality fails to enforce either a compliant code or the national building code, then the DOE will enforce codes federally through “inspections” and enforcement fees.
  • The DOE will also assess a civil penalty for violators of this section. Each day of unlawful occupancy is considered a separate violation. If the home is constructed out of compliance with the provisions of this bill and it has been conveyed by a knowing builder or a knowing seller to an unknowing purchaser, then the builder or seller is the violator. The U.S. District Court has jurisdiction for all legal issues.

To read the legislation, click here and enter H. 2454 in the box at the center of the page.

It is unclear when the bill will go to the House floor. NAHB will continue to monitor the situation closely.

I encourage all building industry professionals to contact your congressman and voice your opposition to this bill.  I suggest that you also contact your Senators and express you opposition should this bill pass the House.

Chuck Miller GMB   CGB  CGP   MIRM   CMP   MCSP   CSP

President / Builder – Chuck Miller Construction Inc.

(208) 229-2553

chuck@chuckmillerconstruction.com

 

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