Home Spotlight: 20xx Laurel

$50,000 Price Reduction

What's the big deal about a $50,000 price reduction?

They're practically run-of-the mill these days, especially in the upper price brackets.

What you don't often see is a $50,000 price reduction off of a home listed for $250,000, like the one shown above.

For the math impaired, that's a whopping 20% (vs. the more typical 3% to 5%).

Located at 20xx Laurel in Minneapolis' Bryn Mawr neighborhood, this 6 BR/4 BA Victorian with over 4,500 square feet is now listed for $200,000, after being reduced $50k on Wednesday.

Compounding the Seller's misery: they paid $560,000 for it just over three years ago (and, no surprise, the Seller discloses that it's a possible short sale).

P.S.: I discuss price reductions in much greater detail in a post titled, "Nurse! I need a price reduction, stat!!"

Downsizing Developers: 'Stayin' Alive'

Dave Alan Homes in Minneapolis'

Bryn Mawr Neighborhood

Feel the city breakin'
And ev'rybody shakin'
And we're stayin' alive, stayin' alive.
Ah, ha, ha, ha,
Stayin' alive.
Stayin' alive.
Ah, ha, ha, ha,
Stayin' alive.

--lyrics, "Staying Alive" (The Bee Gees)

How does a local home builder weather an epic downturn in new construction amid a glut of upper bracket homes?

By going down-market (relatively speaking, at least).

New Math

In this case, Dave Alan Homes appears to focusing more on mid-tier neighborhoods like Byrn Mawr in Minneapolis, rather than upper bracket spots closer to the lakes or in Edina.

So, instead of buying tear-down homes for $300k-$350k and putting up $1.2M new construction in their place, builders are plunking down $150k or so and building $500k-$600k homes.

In fact, $150k is exactly what the buyer paid for 4xx Thomas Ave. South in February (market time: 1 day).

Judging by the state of construction I saw when I drove by this morning, the home is still about 3 months away from completion (note: the home pictured above is another, similar-looking Dave Alan home, not the one on Thomas).

P.S.: Since it's not on MLS, it's possible that this home is being built for a client (rather than as a "spec home").

Now THAT's Dramatic

Bryn Mawr New Construction

What: 4 BA/4BA new construction with 3,500 FSF.

Where: 20xx Laurel Ave., in Minneapolis' Bryn Mawr neighborhood (just southwest of downtown).

How (much): $739.9k list price

Who: Coldwell Banker Burnet (broker); Steven Gouert (agent)

When: on market 11/16/09

Hard not to notice this dramatic new list -- that's the point!

The asking price -- low $700's -- is a stretch for Bryn Mawr, a great, pocket neighborhood between downtown Minneapolis and Theodore Wirth Park on the city's West side.

Confession: I bought my first house there, in 1987.

Forget about paying what I paid then (don't ask); prevailing prices now range from high $200's for a small, starter home to high $500's, for bigger and/or more updated.

This home is part of a mini-trend of new construction trying to push Bryn Mawr's range to $600k-$800k.

It'll be interesting to watch this one . . .

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.