What impact is the sudden McMansioning of the neighborhood going to have on the value of a home? And will the super-sizing of nearby homes have any affect on the neighborhood's culture?
Despite the soft real-estate market homeowners are still investing in their homes. Growth in spending for home-improvement projects is expected to increase by 3% for 2007, and spending is expected to remain constant through the first quarter of 2008, according to Harvard University's Leading Indicator for Remodeling Activity. I would suspect a good percentage of this spending is by current home owners preparing or “staging” their properties for sale.
When shopping for homes, the general rule of thumb is to avoid buying the largest home in the neighborhood. A home that's much bigger than other homes in the neighborhood will typically sell for less than the original purchase price vs. that same home being in a neighborhood with equally large homes. Why? Recent home sales help determine the fair-market value of your home. If no comparably large homes have been sold in your area, it may be difficult to convince home buyers that the larger home is worth considerably more than recent sales of smaller homes in the neighborhood.
On the other hand, having a medium-sized house in a neighborhood with much larger homes can boost its resale value. Where larger, more expensive homes are now more common than another home, a neighbors' home renovations should help to improve your home's value. Adding to its value is the lot size -- with an acre of land there's plenty of room for a homebuyer to add on to the home. Even homes on smaller lots are not locked in where “building up” (adding another story) is structurally and permit possible.
“People who are shopping for homes in a certain neighborhood expect certain amenities in those homes”, says Kermit Baker, director of the remodeling futures program at Harvard University's Joint Center for Housing Studies. "If you're not keeping up with other homes in the neighborhood, you may have home buyers walk away from it," he says. "There's a limited number of folks who want to buy assuming they're going to have to do a significant remodeling project."
Harvard University's Mr. Baker says it's less clear how cultures are affected when major home improvements are made in more affluent neighborhoods. "A lot of times when homeowners begin to make big home improvements other homeowners will update their homes as well," he says. So generally little actually changes in terms of the neighborhood's culture.
Bottom line it is in your interest to at least be aware of home remodeling in your area and trends affecting upgrades in interior and exterior design.