On Sale: Basswood Road

Chain-Reaction "For Sale" Signs

It's one of those anomalies that you see from time to time -- and that understandably gives Buyers pause: a block where every other house seems to be for sale.

At the moment, that phenomenon seems to characterize Basswood Road, a 3 block-long street just west of Cedar Lake that straddles France Ave. (all but the very east end is in St. Louis Park; the rest is in Minneapolis).

What's going on?

I see three factors at play:

One. The "clogged pipeline" effect.

Two of the four (soon to be 5!) houses on the market were originally listed more than 18 months ago.

Rather than reduce their prices incrementally when they failed to sell, the owners have been holding their ground, literally.

While that strategy can work in a rising market, in a falling or flat market it causes a home to be "marooned," overpriced and stagnant -- and gumming up the pipeline for more recent home sellers.

Two. Functional obsolescence.

Much of the housing stock in the area consists of ramblers built in the 1950's: sturdy and solid, to be sure, but now functionally obsolete in many cases.

That often means only one hall bath for all the Bedrooms (vs. a private Master Bath); a dated, too-small Kitchen; and small and too few Bedrooms.

As I've written before, while mortgages have never been cheaper, (major) remodeling dollars are especially scarce now.

Three. Generational turnover.

Several of the Sellers have been in the neighborhood for 25-plus years.

They're now empty nesters who need less space, don't want to do maintenance, and want to travel more.

In other words, it's just time for them to sell.

Having all bought around the same time, it's natural for them to now move on at the same time.

Sizing it All Up

So, what should Buyers make of all the homes for sale on Basswood now?

And should you ever steer clear when you see too many "For Sale" signs?

My answers: "not so much," and "yes, depending."

Certainly where the explanation is rampant foreclosures, Buyers are wise to stay away: foreclosures are like an undertow that pull down the value of all nearby homes.

Ditto for unalloyed negatives like new (or wider) nearby freeways, garbage incinerators, power stations and the like.

However, when other factors are at play (the case on Basswood), and the neighborhood is in a great location with good housing stock, such temporary "Seller gluts" can be great opportunities.

Baby Boomers & Reverse Mortgages

Next Big Thing:
Reverse Mortgages

Take 80 million Baby Boomers fast closing in on retirement age, many of whom (still) have lots accumulated equity in their now too-big homes, and what do you get?

A vast potential market for something called a reverse mortgage.

Like its name suggests, in a reverse mortgage, the lender pays the borrower, instead of the other way around (it can either be a lump sum, or periodic payments).

The benefit to the borrower?

They get to tap their home equity without making payments -- and without qualifying for a new, conventionally amortizing loan (which could be difficult, given the now-retired borrower's lower income).

In fact, there are no income tests for reverse mortgages; to qualify, the borrow only has to: 1) be at least 62 years old; and 2) have sufficient equity in their home, as determined by an appraisal.

Reverse Mortgage Logistics

How big a reverse mortgage one qualifies for is then a(n actuarially determined) function of age: the younger you are, the less you can borrow.

Why no screening for pre-existing conditions, or other health issues that might affect the borrower's longevity?

Because someone in poor health is actually a better risk for the lender. If they die the day after taking out a reverse mortgage, the lender pockets the borrower's residual equity.

Conversely, it's the 62 year-old who's fit as a fiddle and lives to be 100 that causes lender losses (because the unpaid principal and interest keep accruing).

Fortunately for the reverse mortgagors, it's impossible to owe more than their home is worth (a condition called being "underwater").

For the 3% of (long-lived) borrowers where that would otherwise happen, insurance kicks in to cover the shortfall.

Not More Square Feet -- More Per Square Foot

Home Trends 2010: 'Don't Call it a Basement'

First, some background:

The big trends in housing at the moment are being driven by technology, demographics, and economics (primarily, the Recession, and secondarily, energy costs).

Demographics: lots of upper bracket Baby Boomers -- ages 50-65 and on the verge of becoming "empty nesters" -- are suddenly finding themselves with too much house. Not only don't they need 5,000 square foot-plus monster homes, but they don't want the upkeep and property taxes that go with (see, preceding post).

The "Gen X" and "Gen Y" homeowners following immediately behind them are taking the hint, and opting for relatively smaller homes -- say, around 3,500 square feet -- that they won't automatically have to downsize from.

More efficiently used space. The keys to getting by with a smaller house are making it feel bigger, and using all the space efficiently.

Towards that end, here's what I'm seeing in upper bracket homes (with bits and pieces popping up in more modest homes):

--Higher ceilings. The beauty of a 3,500 square foot home with 10 foot ceilings (vs. 8' or lower) is that it really is bigger -- but the property taxes are the same, because the home's "footprint" is unchanged.

--"Don't call it a basement." No, it's not a basement -- it's a "(well) finished lower level." Higher ceilings are showing up there, too, and make a huge difference in how the space looks and feels.

So do lower level heated floors; oversized, flat-panel TV's (now de rigueur for high-end lower levels); lots of recessed lighting; and egress windows (I recently saw a lower level Bedroom with not one but two egress windows; the effect was stunning).

In fact, the only thing you won't find in these deluxe lower levels is the laundry: that's moved upstairs, to the first floor (or even the 2nd).

--More and bigger windows. Beside higher ceilings, the other way to make a smaller home feel bigger are more windows. The higher end, new construction I've seen the last year or so seem to have large, custom windows everywhere (energy efficient, double-pane, low-e -- of course).

--"The Great Kitchen": as I've posted previously, the pendulum is swinging back from completely opened-up "Great Rooms" to a hybrid I like to call "the Great Kitchen": basically, a combination Kitchen - Family Room.

The (formal) Living Room and Dining Room are still there, just smaller.

Same Footprint, More Square Feet -- part 2.

Of course, the other way to squeeze more finished square feet under the same roof is to tackle the space . . . under the roof.

A homeowner in my neighborhood just added dormers to their third level, presumably adding another 1,000 square feet-plus of finished space (I haven't seen the inside).

Besides the extra space, the dormers give the home another great amenity: views of Cedar Lake!