High-End Home Demand Dips In Markets That Once Sizzled
By MOTOKO RICH
Staff Reporter of THE WALL STREET JOURNAL
Updated August 1, 2002 12:12 a.m. EDT
When Michael Peterson and his wife Yevette bought their three-bedroom, two-and-a-half bathroom house for $295,000 in Austin, Texas, in November 2000, they paid the full asking price. "If you didn't snag it quickly, things were gone," says Mr. Peterson, who moved to Austin to work for a dot.com.
A year later, Mr. Peterson was laid off, and the couple decided to sell their home. They put it on the market for $295,000, but got no bites. After three months, they lowered the price to $268,500. Last month, they sold it for $265,000.
In a potentially troubling development, a small but growing number of homeowners are selling their homes for less than they paid. Owners of high-end houses are facing the biggest problems. While many of the cities involved are not surprisingly high-tech areas like Austin and San Francisco, slower growth and instances of price cuts are now becoming more widespread. For example, appreciation has slowed considerably in places such as Baton Rouge, La., Charleston, S.C., and Detroit.
In Atlanta, the number of homes for sale priced at $750,000 and above now stands at more than a 20-month supply, says Rajeev Dhawan, director of the economic forecasting center in the Robinson College of Business at Georgia State University, compared with a four or five month supply in a more healthy market.
The number of homes on the market in Denver has doubled to about 17,000 from January of last year, says Tom Wilson, co-owner of Home Base Realty. In Seattle, another stronghold for high-tech start-ups, home sellers now outnumber buyers by four to one, says Darin Robertson, an agent with John L. Scott Real Estate in Issaquah, Wash.
The price drops and sales slowdown in some markets suggest that the residential real-estate bubble may finally be losing some air. Sales of existing homes in June dropped 11.7%, a sign, some economists say, that potential sellers are having trouble getting the prices they want for their homes.
The housing market is hardly in the dumps. Prices of existing homes are still rising briskly overall. New home sales remain at record levels, and housing starts in June were up 2.4% from a year earlier, though down 3.6% from their May level. There have also been previous instances of price declines in specific markets and so far that hasn't been representative of a broader market problem.
But a possible slowdown in housing appreciation bodes ill for the national economy, since the buoyant residential real-estate market has helped keep consumers spending even as the stock market slumped. If home prices soften, it could undermine the already sluggish recovery from last year's recession.
Of course, if you are buying a home, a drop in home prices is good news. But you should think twice before buying a top-end home, particularly if there's a chance you may need to sell it in the next year or two.
Even in hard-hit Northern California, homes under $1 million are still selling robustly. But more expensive homes are a different story. Trevor Thomas, a 43-year-old former vice president of sales operations at defunct Internet access provider NorthPoint Communications, bought a home in Mill Valley, Calif., in November 2000 for $1.75 million. He spent about $200,000 remodeling the master bedroom, replacing electrical systems and installing screens on the windows.
He put it up for sale last summer for $2.8 million, but recently agreed to sell it for just $1.85 million. "What are you going to do?" says Mr. Thomas, who is moving to San Diego to start a laundry business. "I could sit here and wait for somebody to come by, but every day that I wait is imprudent."
Tom Kunthara, a Realtor with Re/Max Heritage in Sugarland, Texas, a suburb of Houston, says that he recently helped sell a four-bedroom home for $270,000 -- $35,000 less than the seller paid just two years ago. "The market's slowed down," says Mr. Kunthara. "But he probably paid a little too much when he bought it."
Nobody is expecting the kind of nose-dive that housing prices in California, Texas and New England took in the late 1980s and early 1990s. In those regions, home prices dropped for as many as seven consecutive years, according to Economy.com, a consulting firm.
Now, however, interest rates are at historical lows, and owners of many homes are still enjoying solid price increases. Nationwide, the median home price of an existing home rose 7.4% to $163,500, from a year ago, according to the latest survey by the National Association of Realtors.
Even in New York, where buyers hoped to snap up bargains after Sept. 11, local brokers say prices have remained surprisingly strong, particularly in the first-time buyer bracket. The average price of one-bedroom apartments, says Paul Purcell, president of Manhattan-based Insignia Douglas Elliman, a unit of Insignia Financial Group Inc., increased by 5% in the second quarter compared with the same period a year ago.
Many of those who are losing money are people who bought their homes at the peak and are forced to sell now because of a job loss or family circumstance. According to David Lereah, chief economist for the Realtor association, most people hold their homes for an average of five to seven years and usually turn a profit.
But other economists note that home-price declines often lag behind other indicators. "It takes a while for prices to fall because sellers hold out," says Karl Case, a partner in research firm Case Shiller Weiss. Recent memories of red-hot markets are still influencing homeowners. "Sellers all remember when things sold instantly and you'd have three offers in three hours," says Judy DeWitt, an agent with Coldwell Banker Richard Smith Realtors of Austin.
Write to Motoko Rich at motoko.rich@wsj.com |
