"Top-Heavy" Inventory

Jumbo Prices, Jumbo Selection

I'm not a big wine drinker, but I've always believed that wine prices were characterized by a "law of diminishing returns."

In other words, while an average $8 bottle might be twice as good as an average $4 bottle, a $16 bottle probably isn't twice as good as $8 -- and $32 almost certainly isn't twice as good as $16 (I'm sure there are many wine aficionado's who would beg to differ).

Today's housing market seems to be characterized by the opposite phenomenon.

That is, the higher up you go, the better value you find. (see also, "$1 Million Buys a Lot of Home - Again").

$500k as Dividing Line

So, to go back to my wine example, at the moment a $750k house seems to offers more than twice the value as $375k, and $1.5M offers more than twice the value as $750k.

Just to confirm my own, very unscientific "gut sense" about today's housing supply, I ran a search segmenting housing supply by $100k intervals up to $500k, with everything over that lumped together.

I chose $500k because that's effectively the break point between homes that can be purchased with conventional financing (under $417k), putting 20% down, vs. jumbo loans, which are more expensive and difficult to obtain.

For my search area, I chose a broad swath of Minneapolis and close-in west suburbs; the boundaries were roughly Highway 55 on the north, Minneapolis' city lakes on the east, 494 on the south, and between 494 and 169 on the west. That pulled up 866 single-family listings, including homes in Minneapolis and parts of Golden Valley, St. Louis Park, Hopkins, Minnetonka, and Edina.

Here's the distribution I found:

Single family homes under $100k: 4

$100-$200k: 71

$200k-$300k: 212

$300k-$400k: 144

$400k-$500k: 92

over $500k: 343

What are the implications of this?

If you're a Buyer, and you can afford to move up in price, you'll avail yourself of a much greater selection -- and presumably, softer prices.

If you're a Seller with a more expensive home . . . you have lots of competition.

To stand out, you'll need to out-stage, out-market -- and yes, out-price -- your peers.