Turnover & Older Neighborhoods

Renewal vs. Decline

It happens to every neighborhood fortunate to get old enough (at least in the family-friendly Midwest): the original owners raise their kids, become empty-nesters, and downsize.

All at once -- or at least it can seem that way -- the block is for sale.

Is that an opportunity for Buyers?

Like so many things, it all depends.

Potential Upside

Probably the biggest benefit for prospective Buyers is the discount associated with buying a dated home.

Instead of paying more for a home in mint condition, Buyers can use the savings to update and decorate to their taste.

When multiple Buyers all put significant money into upgrading their homes, over time the block and surrounding area can appreciate significantly.

Something much like this happened to Minneapolis' Bryn Mawr neighborhood -- located just west of downtown -- in the '90's.

In the span of less than a decade, that neighborhood went from tired and old to young and hip. In a Twin Cities market that went up 75% in that period, Bryn Mawr prices appreciated almost twice as much.

Less obviously, there's a social benefit to buying on a block experiencing significant turnover: when everyone on the block is a newcomer, it can be easier to fit in.

Risks

Perhaps the biggest negative buying on a block experiencing generational turnover is short-term re-sale value.

When a lot of dated homes hit the market in a relatively short period of time, a "double-whammy" can result: Buyers discount the homes once for condition, and a second time because there's a lot of (competing) supply.

Longer term, there's also the risk that if your new neighbors can't or won't improve their (dated) homes, the neighborhood can gradually slide from "dated" to "deteriorating."

Really Long Run

Ultimately, the key to any neighborhood's viability is whether successive generations of owners have the financial wherewithal and motivation to update the housing stock.

In the Twin Cities' healthiest neighborhoods, such transitions take place seamlessly -- and repeatedly.

P.S.: note that nowhere in this post did I use the term "gentrification." Gentrification occurs when more affluent homeowners move into a deteriorating area and displace poorer residents.