“The Bigger They Are, the Slower They Sell”

That’s from an article in today’s Wall Street Journal titled, “High-End Homes Frozen Out of Budding Housing Rebound” (8/3/09).

The thrust of the article — which I agree with — is that the lower rungs of the housing market are now stable if not recovering, while the upper bracket is still suffering.

That’s because of an upper bracket “triple whammy”: 1) less available, more expensive “jumbo” loans, which are typically used to finance expensive home purchases; 2) higher down payment requirements for said purchases; and 3) stock market and other investment losses, which impair the purchasing power of would-be upper bracket home buyers.

“Beige Elephants”

In fact, the very weakest segment of today’s housing market is a particular subset of the upper bracket: upper bracket homes that need substantial updating.

Such homes face all the obstacles that other upper bracket homes do, plus one more big one: the cost to rehab and/or update, which often has to be paid out-of-pocket (vs. financed).

For a 4,500 FSF, five bedroom house, the related cost could easily be hundreds of thousands.

Unless that cost can be rolled into a difficult-to-get rehab loan, the prospective Buyer has to have that amount lying around.

Throw in the delay and inconvenience, the myriad design decisions, and the required oversight — and suddenly, the pool of prospective Buyers for such homes isn’t so big.

In today’s market, such homes may not be white elephants . . . but they’re beige.

The (slim) silver lining is, now is a great time to get bids on a major rehab project.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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