“Botttom’s Up” Real Estate Recovery

You don’t know who’s swimming naked until the tides goes out.
–Warren Buffett

3,500 FSF is the new 5,000 FSF.
–Ross Kaplan

The housing recovery is happening from the bottom up.

As any active Realtor can readily report, the lower the price bracket, the stronger the housing market; the higher, the weaker.

Clearly, that’s why Congress is now extending tax incentives to so-called move-up Buyers, rather than just first-time Buyers.

Upper Bracket Woes

So where does that leave owners of upper bracket homes? (In the Twin Cities, three years ago I would have put the threshold for upper bracket homes around $800k; now . . . it’s a lot lower.)

In many cases, straining under too-big mortgages on houses that have depreciated in value.

Most at risk are those who bought roughly between 2004-2007, using a lot of leverage; who have jobs or are in businesses most exposed to the recession; and whose other assets, like stocks, are down significantly (although less than last Spring!).

For those folks, the tide is continuing to run out.

That’s why I expect the foreclosure pain to continue moving “up market,” at least in the short run.

P.S.: one more aggravating factor for would-be sellers of larger, upper bracket homes: Americans’ love affair with “big, bigger, biggest” is at least temporarily on hold. I call this phenomenon, “3,500 (square feet) is the new 5,000.”

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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