McMansions fall from favor

McMansions. Faux Chateaux. Tract Castles. Whatever you call them, these extra-large homes, which in northern Nevada could have gotten their asking prices a couple years ago, are now languishing on the market for months, throwing many sellers into panic mode.

In mid-June, Jane Fletcher of the Wall Street Journal described what she called "The McMansion Glut." She defines McMansions as, "a house larger than 5,000 square feet about double the national average with four or more bedrooms that is built cheek by jowl with similar houses."

Because of rising energy costs, rising construction costs, shrinking families, retiring Baby Boomers, empty-nesters and the increasing cost of land, nationwide trends seem to indicate declining interest in McMansions, and an increased focus on quality without quantity.

While housing markets across the nation seem to be stagnating, it's particularly unsettling here in northern Nevada, the fastest growing region in the country. So should luxury homebuilders worry? Is there a McMansion glut in northern Nevada?

Not according to Dan Martin, Reno Division President of Toll Brothers, a luxury home builder with communities in Somersett, ArrowCreek and Damonte Ranch. Martin says their best-selling home is the Seville floor plan at Sunterra, in Somersett. At 5,700 square feet, the Seville starts at about $975,000.

"Toll Brothers, like anybody, has felt a softening in the market," says Martin. "But I don't agree that the leaning toward smaller homes is due specifically to Boomers."

As Martin explains, in the last year and a half in northern Nevada, investors have largely driven the housing market. Investors generally opt for the $300,000-$400,000 range, which could have bought a lot more house a few years ago. When the market softened, the investors put those homes on the market and went looking for the smallest house with the biggest return.

Jon Dewey is the principal architect, owner and president of Architectural Arts, which specializes in custom homes and residential projects. He doesn't agree that such McMansions ever really existed in the Reno area. And while he has seen a slight downsizing, he believes there are other contributing factors: namely, the costs of land and construction.

"There's always been a portioning of concrete in Reno, because of things like large walls along freeways. But now other countries are placing more demand on concrete, causing our prices to go up. China is now the world's largest purchaser of concrete and steel, for example."

"The cost of doing business, for contractors and subcontractors, has increased with regard to labor charges, rates and insurance costs," says Troy Means, co-owner of Homecrafters, a luxury homebuilder based in Reno. "I'd say in the last couple years, custom homes have ranged around $225 per square foot. But now, I tell people to expect a minimum of $265 per square foot."

So what about energy costs? It's true, in many locations around the country, particularly in New England, the average cost of electricity has gone up as much as $3 per kilowatt hour in just the past year. But according to the Energy Information Administration, between April 2005 and April 2006, the average cost of electricity here in Nevada only increased $0.61 per kilowatt hour. It's hard to say whether energy costs are making a significant difference in the northern Nevada housing market.

But there's no doubt that Baby Boomers have significantly affected the market. Once their children leave the nest, and they look to retire and simplify their lives, they tend to buy smaller. But they're making up for it in amenities. Troy Means says great rooms and kitchens are increasing in size, and kitchen islands often get as big as 10 feet by 15 feet. People who may have spent $8,000 to $9,000 on an appliance package five years ago are now willing to spend upwards of $25,000 for state-of-the art packages. Wine rooms, smart wiring systems and high-end home theaters are popular, and walnut floors are now standard.

"They may downgrade from 5,000 to 2,500 square feet," says Dan Martin, "but they don't downgrade from granite to tile countertops. They want the same nice amenities. But still, our best-selling product has five bedrooms and four baths, so I'm not necessarily seeing people asking for fewer bedrooms, either."

Homecrafters has plans to build a new luxury gated community in the Lakeridge area, and Toll Brothers has purchased about 1,380 units in Damonte Ranch to be developed in the next few years. However, while there seems to still be demand for large, luxury homes, Toll Brothers also has plans to build 844 active adult four-plex mansions in Damonte Ranch. These "mansions" are each comprised of four units, ranging from a quaint 1,700 to 2,100 square feet, and featuring nearby amenities like a pool, a clubhouse and a game room.

Martin, Means and Dewey all believe that the market will even out soon, and that for the foreseeable future, there's not really a "McMansion glut" in Reno.

"We're pretty excited about the future," says Means. "We're not dismal around here."