Thursday, July 23, 2009

Higher Priced Homes Sell at Snail's Pace - Newsflash!

The Daily Progress is witness to the local version of a national trend: higher-priced houses are having a hard time finding new owners.

The story even has a homeseller in Old Trail who has cut his price--more on this below.

First, the facts: in Charlottesville and Albemarle, there are 184 properties priced $750K or higher. Add in the Counties of Greene, Louisa, Nelson, and Orange and the figure rises to 253.

The problem? It's a phenomenon we've been commenting on for some time. Not only have area sales been declining since 2005, but without "creative financing," higher-priced homes don't move. Creative financing includes loans that have no income documentation or were "Option ARM" loans, which allowed buyers to begin at a lower interest rate. And nowadays, for a Jumbo loan, there's the expectation of 20% down payment. For a $750K house, that's $150K.

Additionally, there's a significant lack of "move-up buyers."
Local jobs or income streams do not support this Century's overbuilding of McMansions. But the whole concept of "move-up" buyer no longer exists the way it did in the past--or the way it did during the Bubble when the fake appreciation was in the double digits, annually, and fogging a mirror equaled qualifying for a loan.

A family who buys a house this year should consider themselves fortunate if they make enough to cover closing costs in five years. Forget about "profit." Buying today means committing to staying put--for quite some time.

And those who do have money and come from outside the area? With such a huge supply and ever-dwindling demand, combined with knowledge of national real estate trends, they expect local prices to "adjust" as has happened pretty much everywhere else--on the planet.

Just browsing local listings of lower-priced houses gives one a sense of the lack of move-up buyers. And taking a look at the higher-priced houses gives a sense of how many there are--and will be--for a long time to come.

The DP article, High Priced Homes Pose a Hard Sell For Most Areas, features the house pictured to the left, a 6 bedroom, multi bath house on Woodbourne in Old Trail in Crozet, over 4,000 sq feet. Priced at about $1M, the owner, a local builder, will lose money when he has to, once again, drop the Asking. “Every month that passes [we] assume that our house is worth less money,” Christopher Brement said. A smart man in an unfortunate position.

Of course, the article highlights one Realtor who thinks that the market will be better in a year. This idea is, literally, based only on optimism. No local, regional, or national forecast gives any buyer or seller any idea that housing values will do anything but continue to decline. In fact, values at the higher end are expected to drop even further, due to unsold properties sliding into forced or strategic foreclosure. The article also points out that "Homes can still move quickly...depending on price and amenities." Yup: and all it takes is one buyer. Such anecdotes serve only to instill optimism, not to assist in coming to terms with the reality of this "new market."

Sales in this area since 2003:



A reader submitted this graph of Central Virginia Sales, 2003-2009.


Click on image for larger version in new window.



Below is The DP's graphic showing sales for the Charlottesville Albemarle Area, based upon the Realtor's association mid-year report. "Area's Mid-Year Home Sales Reflect Continued Struggle:"





The sales indicate "all types," including condos, townhomes, and single family houses. The decline in sales of individual property types is actually higher.

Click on image for larger version in new window.




Related Reading
(some of these links are also embedded in post)
High Priced Homes Pose a Hard Sell For Most Areas - The DP
Next Segment of the Market to Crash: the $1M McMansion - Business Insider
The United States is Nowhere Near the Bottom of the Housing Crash - T2 Partners
The Economy Will Never Recover - Robert Reich
10 Reasons There Aren't More Move-Up Buyers
Graphs Showing Declining Sales 2003-2009
Median Prices
2002-2009
CAAR's Mid-Year Market Report

12 comments:

Anonymous said...

Every time a local Realtor makes one of these ridiculous predictions about long-term market trends, I lose more respect for the profession (I'm not sure how that's even possible at this point).
Recession + requirements for borrowers to have skin in the game + disappearance of liar loans and teaser rates + massive oversupply relative to what the local income base can bear + forthcoming jumps in tax rates for those few who can still afford to play in the jumbo market = Prolonged downturn for high-end homes.
It's amazing that Realtors remain blindly optimistic despite the fact that all of their long-held adages (housing is always a good investment; housing will never decline in value; scarcity of land leads to constantly rising prices) have basically been completely destroyed over the course of the last 2 years.

Buyer said...

The surprise is not that there was some completely economically uneducated Realtor spouting that the market may be better in one year. The surprise is that there was only one! The DP is reliant on Realtors (TM) for advertising revenue.

Brement is a builder and he used fake slate for his roof. I don't care if it lasts 1000 years. It's still fake. See house specs at gisweb.albemarle.org

Marjorie Adam said...

Thanks for calling me out on your bolg with a helpful link to my website. Just thought I would point out that I did NOT say that the market was going to turn around in one year. I would not be stupid enought to say that, much less in an article in the Daily Progress. Notice that this comment sits alone, not quoted or attributed to me, above a paraphrased comment that I made, also not in quotes, as he took a long conversation, made one comment and did not quote me.

From the article:

Some local high-end home agents don’t see the market turning around for at least a year.

The market for homes over a half-million dollars is tough, no doubt about that, said Marjorie Adam, Realtor with Remax Assured Pro-perties. Homes can still move quickly, however, depending on price and amenities.


I do not in any way, shape or form think that the market will magically turn around next year.

Real C'ville - The Bubble Blog said...

Maybe you'd like to give an opinion about what the market will be, rather than what it won't be.

The market will never again be what it was from 2000 to 2006 in Charlottesville / Albemarle or (most of) the rest of the United States--unless of course there's Divine Intervention. So "I do not in any way, shape or form think that the market will magically turn around next year" is a safe bet.

So if the market's not going to magically turn around, what do you think is going to happen?

For instance, regarding these questions:

1. What's your estimate on how much more prices will decline, in percentages, over the next year? Over the next two years?

2. Do you see differences in the way prices will decline in different price segments and neighborhoods of the market?

3. Once they've hit "bottom," how long do you think prices will remain flat?

4, On what are your estimates based?

5. Based on the estimates and data you choose to cite, what's your best advice for buyers?

6. What's your best advice for sellers?

7. Are you doing anything to help your colleagues think about the "new" market and the "new" economy?

If you'd like to write a post instead of responding in a comment box, we'd be happy to put it up in its entirety. (email: real.cvilleATgmail.com)

Thanks for answering.

Pavel said...

Under Contract? Really? A few days after the featured DP article? Free advertising or just plain old "good luck".

Real C'ville - The Bubble Blog said...

Pavel,

You know, some Realtors (and sellers) believe that there's no such thing as "bad" advertising.

The DP article doesn't say "no" high-end properties are selling...it points out that sales are slow. Which is a national trend.

This blog doesn't assert that "no" high end (or other price point) properties are selling, but that sales are drastically slower than they used to be...and that prices are adjusting, and will continue to adjust...for some time to come.

You had a great definition of a "market recovery" a few months ago...any additional thoughts or observations?

Real C'ville - The Bubble Blog said...

"Precipitous" House Price Declines at the High End

http://tinyurl.com/mmhvct

949 Fields of Boaz Dr, Cville $2,995,000
6bds, 7 bath, 8,200 sq feet

Price Reduced $505K 14.4% July 17

One example

Pavel said...

You know, Bubble Blog author, the higher-end ($500K+) market is so unpredictable. The only "predictable" variable is that there are lots of choices and will be for a long time to come. Rosemont offering for $699K? Should there be a line forming to purchase this one? What about $499K in Glenmore with a swimming pool and 2 (2-car) garages? My advice to buyers looking in the $500K+ category: is the property unique? Take your time. Purchase in the neighborhood/area with low "active" inventory or a consistent active to sold ratio. Lots of choices in the neighborhood, but love the house? negotiate, negotiate, negotiate. Low inventory areas/neighborhood examples in Albemarle County: Ashleigh (great mini-farm properties), Rosemont (great views, easy access to I-64), Ashcroft (near the new Martha Jefferson Hospital and nothing in the $450K-$650K range... there is typically at least one offering in this price range).

Good number of buyers are still on sidelines; waiting for good deals... in the last 3 weeks two of my clients were in multiple offer situations on 2 different properties (under $200K).

peptic skeptic said...

I think the last comment by Pavel is telling particularly the under $200K part. I would say that stuff under the $200K asking price will move somewhat quicker than homes over that number I remember when I bought my first house - a townhouse in 1999 for $127K. At 7.25%. 5% down. Will we go that low again? Add to that lending changes that are not as
"user friendly". As far as 2000- 2006, it must have been love, but its over now...

I wonder if the new Case/Shiller findings will have any impact here?

michael guthrie said...

Anonymous--"2 years does not a market make". I have shared this information before but it is a personal example of why investing in real estate long term is in most cases a safe bet. In 1988, I bought a home in Reston, VA for $333,000. No sooner then the ink dried on the the contract, the real estate market took a very bad turn. If I had tried to sell it over the next couple of years, the price would have probably been around $265,000. Instead, we stayed in the house until 2001 and sold it for $525,000. This represented an almost 60% increase in value over 13 years while getting the tax benefit of the % I paid on my mortgage. Pavel's advice above is good. Needless to say, I would be very careful on what you buy if you aren't planning on staying in the house for awhile or renting it should you have to move.

Real C'ville - The Bubble Blog said...

Pavel & Michael,

Pvael: re: higher end and unpredictable, yes, truly, especially when you consider that this area has "niche" markets. Would the same person who wants a house in Dunlora want a house Downtown even though they're the same price? Of course not. Would the same person who will buy Parsons Green buy down Rte 20? Perhaps not.

We know anecdotally of several buyers who remain on the sidelines for various reasons. As you say, they're not alone.

The unknowns are this: What will happen this fall? After Q3 and nat'l unemployment keeps rising? As we get closer to expiration of $8k tax cred? What will Aug & Sept closings bring...these are the months that will start to be impacted by the dramatic rise in interest rates at the end of May, and the issues with the HVCC....

Michael, your example of a house accruing in value seems like a salient one...except that this bubble's popping is longer and lower than other devaluation periods in the past...and the rise was higher. What if you'd held on to that house? Have you checked back in on it in property records? Seen how the assessments and/or sales went up? And where the assessments or comps are now? That's probably an interesting story.

What seems to hold true for many buyers right now (but by no means all) is that the longer one can plan to hold on to the house, the "safer" the purchase is....

michael guthrie said...

Real Cville--I am glad you asked about the assessment of my own personal example because I learned my memory of selling the home in 2001 was wrong. I originally bought the house in 1988 for 333,000 and sold it in 2001 for $475,000 when the tax assessment was $326,290. The assessment went up as high as $661,890 but the property is currently assessed at $565,010. There is a similar home currently on the market listed @ $575,000