Last night I watched with interest as ABC's Nightline did a feature on a neighborhood of McMansions in Southern California....or I should say: the demise of a neighborhood of McMansions? The mortgage crisis has TRAPPED the owners in their monster homes, unable to sell, and awash in negative equity.
Not only did they buy at the top of the market with 100% financing, they did it for all the wrong reasons.
For those who don't know, McMansions are cookie cutter "luxury" homes, usually built very close together by one builder. Call them tract houses on steroids. There are hundreds of these neighborhoods across California.
These are 5000-7000 sqaure foot monster houses filled with granite and marble. Master bedrooms as big as a garage. Ceilings so high that the occupants are dwarfed. Heating the house costs as much as a car payment. Kitchens are filled with enough stainless steel to build 3 cars.
Would you call this lifestyle a little OVER THE TOP?
Whatever you call it, these homes epitomize the excess and the frenzy of a real estate boom that went bust in our once over heated California market. Those interviewed had paid $1.6 million, then dumped another $250,000 into pools, fountains, and landscaping. The reporter pointed out there were foreclosures on the same street on the market for $999,000.
OUCH. We all know what THAT means for those trying to sell their homes for $1.8 million just to "break even". The real estate agent who was interviewed talked about the seller understanding "reality".
Isn't that a nice word for being nearly $1,000,000 upside down? Upside down on steroids.
Is there anything more depressing and cold than an abandoned luxury home with a dead lawn and fountain filled with dead leaves instead of splashing water?
However, we all know the $999,000 house will sell long before the house that has an owner still clinging to "breaking even". We all know that once THAT house sells, there is a comp in the neighborhood that will play havoc with getting any house appraised anywhere near the $1.8 million asking price.
But what struck me the most was interviews with the McMansion owners. You would at least hope that living in something that resembles a spa vacation in a fine resort would be, well, FUN.
The reporter interviewed a baby boomer aged couple that was rambling around all by themselves in a house as big as an industrial warehouse. They bemoaned that fact they had dumped their entire nest egg into the house in hopes of retiring as soon as the house appreciated, and made them the lucky winners of an equity nest egg.
Flippers on steroids?
Did they like the house? Well, no. They longed for something smaller. Something less grand. Something more simple. They felt miserable and trapped with their $6000 + payments and 6000 something of square feet they had to maintain. They confided to the interviewer they only bought for "investment".
READ: To make a quick buck.
What a sad statement that the basis for buying their home was about the almighty buck instead of living a lifestyle of financial security, and coming home to a place of contentment.
Who will buy these houses now? Will the coming increase in the conforming limit produce buyers? Or are these houses simply relics of an era when the word appreciation meant a ticket to riches instead of the quiet satisfaction from owning a home you truly love and can afford?
Written by Janet Guilbault, California Mortgage Lending Expert based out of the San Francisco Bay Area.
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Janet - There is one thing I was taught and believe about equity & money in general, never count on it or spend it until it's really there. More than that, the other lesson to come out of this is if you are going to buy a home to call a roof over your head....do it for the right reason, because you want to call it home.