Have the days of conspicuous consumption really ended? What will become of all the McMansions built during the era of 'unlimited prosperity?' Will they sit vacant? I doubt it. We are not a society that does well with deprivation.
When my husband and I were starting out, we looked around for a long time before we bought a very small townhouse that we could afford. It was not in the town that we wanted to live in, but it was in the town we could afford. After 2 years we sold that townhouse and we moved in to a bigger townhouse. After 5 years we sold that one--just happy not to bring money to the table--and moved in to our first single family house. We had been saving for our down payment and were both working to afford the mortgage. We were in that house for 5 years before we saw a cent of appreciation. At the 7 year mark we sold that house and bought the house we are currently in. It was a process. We did not get in to our dream house easily or quickly. We paid Property Mortgage Insurance (PMI) along the way because we did not always have 20% to put down on our house. Ours was a common story--one that virtually all of our friends wrote for their own family histories.
Fast forward to the young people starting out today. More often than not the list of 'must haves' for them include islands in the kitchen (which requires a big kitchen), granite counter tops, fenced yards and family rooms. These are not items often found in condominiums or starter townhouses. So these buyers have been jumping over the traditional starter homes and buying what I consider to be a 'third round' house. In order to do this, they often took out ARMs or a combination of first and second trusts to avoid paying PMI.
This financial crisis, at the very least, will make buying anything but a starter home as a first house more of a challenge. Lenders are going to take a much closer look at a buyer's financial situation and it will be much harder for a borrower to take out a border-line loan. I hope this won't discourage first time buyers, but rather, bring them back to reality.
I doubt that first, or second, time home buyers are going to stop wanting the fancy, large houses. That is the way they have been raised and what our society teaches us that we should strive for. Already, however, I do see a bit more willingness to delay the gratification to make sure they have the money to put down on their dream house. Maybe they will stay renters for a little bit longer, move in for a short time with Mom and Dad, or take out a loan that requires a little bit longer to process, but means they can get in for less money.
The McMansion craze has probably slowed down, but I doubt it will go away. You might buy in to the idea that smaller is better, but when you can't find somewhere to put the kids toys or set up your home office, the idea of having a special room just for that purpose can be very appealing. Sometimes what appears to be 'keeping up with the Jones' is really just trying to make things work for your family. There is nothing wrong with wanting a big house; the only thing that is wrong is wanting a big house that you can't (really) afford.
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