Staycations and the Shrinking Home

This is my new favorite term, staycation - however it feels almost mocking when a British newspaper is using it when talking about us. It's all sort of pathetic really - Americans trapped in their homes and neighborhoods (you guys with mass transit would not understand what we're talking about, but I read only 5% of the US population has access to mass transit - doh!) I believe my best trade last week was the ability to buy gas for $3.99 mid day Thursday (crude would eventually rise $6 that day, then $11 the next) - in fact it was $4.09 at the same station when I drove by later that night. I averted my eyes Friday.

• Wal-Mart (NYSE:WMT) , the largest US retailer, wants to trademark the word. Lowe's, the home improvement chain, is building its summer marketing campaign around the idea. And state tourism board officials in Maine want residents to think about taking one.
• As American consumers face a slowing economy and record energy and fuel prices, the "staycation" is looking increasingly like the marketing buzz word of the summer of 2008.
• These, it declares, are "affordable, fun and family-friendly things to help you relax, celebrate and enjoy the special moments of summer in your own backyard". They include finding and planting your state flower, visiting a recycling centre and cooking up summer recipes. (sounds like... fun... yeh, a ton of fun)
• The marketing push is based on growing evidence that Americans will travel less this year. One sign of that came in a recent survey of more than 2,000 US residents by Rand McNally, the leading US road map publisher, which found that 57 per cent of Americans planned to shorten their holidays and stay closer to home this summer.
• The origins of the word remain uncertain. Hunter Walk, an internet product manager, bought the domain name staycation.com in December 2005 after spontaneously using it with friends some months before. (damn, good call!)

Speaking of which, on a tangent topic long time readers will know I proposed as we enter this next wave of "World of Shortages" - energy costs will drive people back into cities, and inner suburbs... outer suburbs will the the environ for the upper 5-10%, with those long commutes and 3000+ sq foot homes. Not only with gas to drive to work begin to matter, so will the costs to heat or air condition your home (many will find that out next winter) - clearly heating 1800 sq feet will be a more palpable solution that heating 2800. I have been struck, even locally in a 5 year "1 state recession" how almost all new homes built have been 3000 sq foot or more. I think this will change and the first signs are now coming. Not to mention the slowly but surely "pooring of America" simply requires a smaller, cheaper stock of housing so that people do not have to resort to exotic mortgages just to have a basic home over their head.

• Now KB is among the first homebuilders to recognize the error of its ways, and it is returning to its roots as a purveyor of low-cost, smaller homes. In some cases KB is even using the same façades from the go-go years and then shrinking the house that lurks behind them to be half as deep - and about half as expensive.
• When the real estate market comes back, it will not be with a sonic boom. It is likely to be subtle, below the public's radar. (agree! think tech stocks circa 2000-2004 - people are assuming if they miss the bottom of the housing market they're going to leave 20% on the table in 6 months. no no no.)
• In hindsight, the reason for the current malaise is simple: too few buyers. By 2007 more and more people were frozen out of the market - especially the entry-level buyers, who now account for as much as 30% of new-home sales. They're the twentysomething young professionals who rent until they get married or the first child arrives, and then reach for the American dream of homeownership. From 2005 to 2006 some first-timers rushed to purchase homes they couldn't afford with the help of exotic loans.
• Three factors are driving the New Affordability: housing prices, house size, and the government's expanding role in the mortgage market.
• The houses themselves are being radically downsized to meet buyers' budgets. At the peak of the last boom, in 2006, KB's customers craved cathedral ceilings, formal dining and living rooms, and fancy wrought-iron railings on windows and balconies. Today's buyers, KB found, are willing to trade size and amenities for far lower prices. But they're extremely specific about what they want to keep. Buyers welcome houses half as big as the models that reigned at the peak, as long as they offer plenty of bedrooms. They also don't miss the formal living and dining rooms if KB provides a "great room" combining the two in one open space that includes a generous-sized kitchen.
• Bargain-hunters are drawn to these small houses, which look just like the behemoths built in 2005 and 2006. In Beaumont, a community of tract homes 70 miles east of Los Angeles, the Seneca Springs community is dotted with 4,000-square-foot, seven-bedroom Mediterranean homes that KB built at the peak. But right next to them the company is erecting new houses with exactly the same 50-foot façades- and a big difference you don't notice from the street: They're about half as deep and roughly 2,000 square feet. Those homes preserve the community's curb appeal by keeping the façades looking similar and sumptuous. But purchasers love that the new homes boast five bedrooms, and they especially appreciate the pricetag: about $220,000, vs. $420,000 for the big neighboring homes built at the peak (and that now sell for around $300,000).
• Market forces were partly to blame for KB's detour in 2005 and 2006. Builders could sell all the $400,000 homes they wanted, and the margins on those McMansions were a lot fatter than on small houses, chiefly because they could build them on virtually the same small lots as the old-fashioned starter houses.
• Mezger's back-to-basics approach depends on two variables beyond his control: land prices and labor costs. In Jacksonville, for example, the price for finished lots with roads and utilities in place tripled from $25,000 to $75,000 between 2002 and 2006. KB couldn't make money building its old staple and had to build big. By 2006 KB's median price in Florida had jumped from $180,000 to $270,000, and the size of its houses had ballooned from 1,800 to more than 3,000 square feet.
• Today both land and construction costs are falling rapidly. In California's Inland Empire, the price per finished lot has collapsed, plunging from $150,000 at the peak to about $50,000. Labor costs, the single biggest expense after land, are also dropping as construction trades look for work. In Florida, construction costs for a 2,000-square-foot home have dropped to $80,000, vs. $100,000 at the peak, a 20% reduction. The result is that the average sales price there has fallen from $275,000 to $215,000. In the inland areas of Southern California it has dropped from $350,000 to $260,000.

If we truly are entering an era of sustained higher energy prices (with ebbs and flows of course), the era of the McMansion will have peaked circa 2006; big houses will once again be reserved for a smallish subset of society. Most will have to "make do" with 2000-2400 sq feet - oh the horror (the European readers will get a laugh out of that)

So let's review - our future will be filled with staycations in our much smaller homes - sounds like fun! :)