June Fletcher, writing for the WSJ.com sorted out the recent data dump of housing figures to draw a few conclusions about markets and what I am calling "Million Dollar Babies", or jumbo, starter Luxury homes. These homes are said to be sitting in a market niche that is suffering greater price declines than other segments. Writing about Chicago and the mid west, she wrote:
"The Sunbelt cities that attracted droves of buyers and builders during the boom have fared poorly. Overheated and overbuilt markets finally slowed down by the end of 2006: prices fell 4.2 percent, to $876,250, in Miami and flattened in Phoenix at $887,660 and in Charleston, S.C., at $937,500. Some Midwestern markets also performed badly. Prices were down 3.3 percent in Chicago, due in part to the loss of manufacturing jobs there. Things were even worse in St. Louis, which lost 3,300 jobs in the year ending November, second nationally only to Detroit. Prices in St. Louis were down 7.2 percent, the largest decline in the survey."
With all due respect (she does a great job reporting on real estate markets), I always wonder just how much research goes into such broad statements about price moves as "due to the loss of manufacturing jobs".
For example, how much speculative buying and selling, or lack of actual sales, factor into that 3.3 percent decline? Fletcher went on to explain how speculation meshes with Chicago Real Estate market trends with an anecdote about a family who traded down in a falling market for homes in the 1 million dollars range. She observed that the market seems fueled more by need than speculation, which was the trend until now.
During the boom, many buyers bought the biggest house that they could because they saw that as a way to increase their investment in real estate without buying rental property. But now that the market is softening, that strategy no longer makes much sense. Lawyer Beth Joffe and her husband, a physician, recently sold their three-bedroom Chicago home for $760,000 and have moved to a much smaller two-bedroom condo in Madison, Wis., that they bought for $300,000. Though both are far from retirement age, neither wants the hassle or added expense of a bigger place. "We don't need that any more," Ms. Joffe says.
The view from 30,000 feet is that it appears that sellers are in a sort of race to the bottom mode, where they price their houses lower right out of the gate in order to make sure they are getting a good number of bids from the start, whereas, up to now, sellers listed just above current comp. prices with the expectation that they would get plenty of offers. As she put it:
"Agents say that in many cities, the shifting psychology is causing sellers to reverse their tactics. During the run-up, sellers usually priced their homes slightly above the market knowing that someone would buy them, even if the price tag later had to be lowered somewhat. Now sellers are trying to undercut the market to sell while their listings are still fresh."
Again, every seller's situation is unique, just as every property has its' own special features or challenges, and "result will vary" as they say. However, it helps to look at the big pictures when trying to make sense of the conditions when buying and selling real estate. And according to Fletcher's report, that big picture is as follows.
In the fourth quarter of 2006, only 32 metro markets had 100 or more sales in the "starter luxury" category -- new and existing single-family homes costing between $750,000 and $1.25 million -- down from 65 markets in 2005. Here's what's happened to the median prices of starter luxury homes in selected metro areas.
4TH QTR 4TH QTR METRO AREA(1) 2006 2005 percent CHANGE
St. Louis $858,500 $925,000 -7.2
Edison, N.J. $875,000 $937,500 -6.7
Miami-Miami Beach-Kendall, Fla. $876,250 $915,000 -4.2
Chicago-Naperville-Joliet, Ill. $870,000 $900,000 -3.3
San Francisco-San Mateo-Redwood City, Calif. $870,000 $880,000 -2.0
Richmond, Va. $990,000 $960,000 +3.1
Salt Lake City, Utah $929,670 $896,420 +3.7
Minneapolis-St. Paul, Bloomington, Minn. $935,000 $899,000 +4.0
New York-White Plains, N.Y.-Wayne, N.J. $906,750 $870,000 +4.2
Santa Ana-Anaheim-Irvine, Calif. $917,750 $880,000 +4.3(1)
Areas with 100 or more "starter luxury" sales.
