One Less Rambler Near the Lakes
Continually replace the cheapest house on the block with the most expensive, and what happens?
The block’s median sales price increases.
Sometimes gradually, if the pace is slow.
Or sometimes, quite rapidly, in the case of several high-demand pockets near the City Lakes right now.
Thanks to such redevelopment, neighborhoods like Fern Hill and Minikahda Vista (St. Louis Park); Linden Hills and Fulton (Minneapolis); and Morningside and South Harriet Park (Edina) are seeing steep appreciation not just in their average and median prices, but their entry-level prices as well.
Case Study
To make things more concrete, consider what’s currently happening on the 2600 block of Monterey in St. Louis Park’s Fern Hill neighborhood, just west of Cedar Lake.
The dated 1950’s rambler (above) that just sold for $370k is getting a second story and, presumably, a “whole house” re-do. See photo #2, below.
Assuming it’s done well, the finished product should be worth $700k – $800k (or more).
Within three blocks, no fewer than half a dozen such major remodels are currently underway, plus at least three new construction homes.
Changing Values
Especially if the changes are being done by the current owner vs. by a pro for resale, the broader market may not be cognizant of such improvements.
But, eventually, the area’s housing stock turns over, at much higher prices.
How much higher?
For illustrative (and simplicity) purposes, assume a city block with eight homes.
In 2000, a block in one of the above-mentioned neighborhoods would have looked something like the following:
House #1: $200k
House #2: $250k
House #3: $225k
House #4: $275k
House #5: $350k
House #6: $250k
House #7: $350k
House #8: $250k
In case you’re not into statistics, here’s a quick numerical snapshot of the above:
Average Price: $269k
Median Price: $250k
Entry level: $200k
Fast Forward 15 Years
Now, magically wave your hand, and make it Spring, 2015.
What might such a block look like now?
Something pretty close to this:
House #1: $800k
House #2: $250k
House #3: $650k
House #4: $500k
House #5: $500k
House #6: $900k
House #7: $500k
House #8: $800k
The foregoing reflects a mix of new construction (Houses #1, #6, and #8); major remodels and/or additions (#3, #4, #5, and #7); and what I’ll call “holdovers” (#2).
Here are the updated stats:
Average Price: $613k. Change: ↑ 128%
Median Price: $575k. Change: ↑ 130%
Entry level: $250k. Change: ↑ 25%
If anything, those numbers are misleadingly low: once the sole holdover (#2) is replaced with a $900k house, the numbers rocket higher:
Average Price: $694k
Median Price: $725k
Entry level: $500k
Accelerating Gains; Implications
What does all of this mean?
Who are the winners and losers?
For Sellers — at least ones leaving the area for a less expensive one and/or downsizing — it’s unqualified good news.
For Buyers and builders interested in select neighborhoods, though, it means greater competition and higher prices, which isn’t good news.
Casualty: Character?
However, as a whole, I’d argue that the process is healthy for the housing market, and the overall economy.
It creates jobs, rejuvenates the area’s housing stock, and supports higher property taxes.
Which, collectively, lays the groundwork for yet more jobs, healthy housing, and higher property taxes.
The chief casualty — and it’s a genuine loss — is that as several Twin Cities neighborhoods gentrify, they’re pricing out the teachers, social workers, police, and yes, artists who now inhabit such places and help give them their character and charm.
Call it the “Mini Apple” version of what’s happening — on steroids — in New York City now.
P.S.: one more surprise winner in the “upscaling” of various Twin Cities neighborhoods?
Adjacent, less heralded areas where prices are still affordable.
Candidates: Robbinsdale, Richfield, and parts of Golden Valley.
