Fewer home buyers trading up keeps prices down
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The housing market is in a long slump, but sales of low-priced homes in the Twin Cities metro area are actually brisk. On the other hand, homes in the mid to high price ranges are selling very slowly.
You might think that the suburb of Edina would be a kind of realtor's paradise. The town's wealth has earned residents a reputation as "cake eaters" and the high school's cheerleaders have even been known to flaunt that label in school cheers.
There are a lot of million-dollar homes in Edina, but for realtors who work there, like Jim Luger, it takes a lot less to make them cheer these days.
"When we get something above $200,000 we kind of cheer about that," Luger said.
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Luger said a lot of people in higher priced homes are holding off on selling because the market is so tough right now. But his Century 21 brokerage does have some homes listed in the $500,000 and $1 million range in Edina and around the Twin Cities metro area.
"Those are not moving, period," Luger said.
That's a big change from the peak of the market, around four years ago, when houses that sold for $190,000 or more accounted for about 3 out of every 4 Twin Cities home sales. Now, those houses make up about 42 percent of sales, according to data from the Minneapolis Area Association of Realtors.
The reverse is happening for low-priced homes. Houses selling for $120,000 or less used to be just a blip on the radar -- about 2 percent of the total in 2005. Their share ballooned to 27 percent by last month.
Housing experts say this is happening in part because the market is clogged with foreclosures and other distressed properties.
"They're still a very high percentage of the sales," said Jeanne Boeh, an economist at Augsburg College.
Boeh notes that distressed properties make up about 40 percent of Twin Cities home sales. And those houses tend to have lost value.
"If you think you're going to lose your home to a foreclosure, you're not maintaining it," Boeh said. "You're not doing all sorts of upgrades."
But buyers still consider them an option. That option looks even better when you throw in the federal stimulus package's $8,000 first-time homebuyer tax credit. Boeh said that tax credit drives traffic to low-priced homes -- but not to higher priced residences. So the tax credit does little or nothing to help current home owners who, in the past, might have traded up to more expensive homes.
"It's just not happening that much," said Elliot Eisenberg, the senior economist for the National Association of Home Builders.
Eisenberg said consumers just don't feel confident enough to make a big bet on a more expensive home.
"It's as if to say I think I'm going to have a job, I think I'm going to be successful, I think my job is stable, I'm going to plunk down a down payment," Eisenberg said.
Eisenberg said, until the job market improves, home buyers are not going to have that kind of confidence.
"Think about it, buying a house is the most enthusiastic or optimistic things people do in their life I think," Eisenberg said.
Eisenberg quips that he used to think marriage was the most optimistic event.
And even if you're optimistic enough to buy a house, Eisenberg notes that you may run into trouble financing it.
All of this is bad news for homebuilder Rod Miller. He's stuck with a fancy home he built in Minnetonka in 2007. The one-acre lot is so big he has to pay someone to mow it.
Inside, the house has six bedrooms, four bathrooms, and a lot of high-tech features. Miller points with pride to a control pad on the wall that allows you listen to an iPod or CDs in any room.
"The house is wired for sound throughout," Miller said.
But people don't want to pay for features like that anymore. Miller had to slash the sales price by $300,000. Even with the price down to $1.5 million, he doesn't expect to find a buyer soon.
"I was thinking I would be selling this house within a year and now it appears to be, well, I'm going on my second year and appear to be looking at a three-year market for this home," Miller said.
For now, Miller and his wife, a schoolteacher, are living in the house and paying the hefty mortgage on it. Miller said the next home he builds will be geared at today's market of moderately-priced homes.
