McMansion Glut...smaller may be getting better

June 24, 2006

I opined in the past that part of the housing glut in Loudoun County is due to builder speculation on the demand for McMansions. A REALTOR® friend alerted me to an article on RealEstateJournal.com (WSJ) about a study performed on this subject. After reading it (Loudoun County is mentioned several times) I became curious about the current numbers (how can I resist?). I'll define McMansion on any home priced above $800,000. Here's what I find:

Single Family Detached Homes $800,000 and up
Resale Properties	Number	DOM	Avg Price
Active Listings	486	108	$1,152,000
Under Contract	41	108	$1,104,000
YTD Sold	160	106	$1,068,000
New Construction	Number	DOM	Avg Price
Active Listings	332	213	$1,075,000
Under Contract	14	157	$1,125,000
YTD Sold	109	**	$985,000

The current listing absorption rate for resales is 8% (41/486).
The current listing absorption rate for new construction is 4% (14/332).

One word of caution in the interpretation: Many new home builders don't list in the MLS and only update the MLS after the sale (often not timely).

The total McMansion inventory of 818 homes is about 18% of the total inventory (~4,650) currently on the market (considering the caution on new construction data, it is more likely in the 20-25% range). Also interesting to note is that new construction is selling at about 87% of the average price under contract. This is consistent with the anecdotal evidence in their advertising of "sale" prices and special incentives.

So, perhaps all this points to a real glut in this market range and sellers, even builders, are having a hard time selling their homes. Will the trend continue? I believe it will. The baby boomers (where most of the wealth resides) are downsizing and younger individuals and families just can't afford these any more because of rising interest rates. In fact, we might start seeing more of these dumped on the market as the creative "interest only ARMS" start coming due.

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