Dina ElBoghdady, Washington Post Staff Writer, June 27, 2009
When Natalie deWolf and her husband listed their District home for about $1.2 million in April, they were competing with roughly 25 similarly priced houses in their Chevy Chase neighborhood.
“Only four houses had gone under contract in that price range in the previous four months,” said deWolf, who sold her home last week. “It was a little nerve-wracking.” Many of the homes, she said, are still for sale.
While entry-level homes are getting snapped up by bargain hunters across the Washington region, pricey ones are languishing. This excess supply is a setback for some pockets of this area where single-family homes listed for $1 million or more make up a sizable chunk of the offerings — about 85 percent in Cleveland Park, 73 percent in Great Falls and 55 percent in Potomac, according to research firm Delta Associates.
Even in the best of times, high-end homes take longer to sell because there’s thinner demand for them; this down market has exacerbated matters.
That’s because pricey homes are the province of move-up buyers, many of whom have watched their home values decline, their financing options shrink and their net worths erode as the economy soured. For trade-up buyers, the $1 million-plus homes that were within reach a few years ago are no longer an option. These prospective buyers are reluctant to take on debt even if they can afford it. And as they retrench, high-end sellers are left in a lurch.
In the Washington area, nearly 16 percent of single-family homes listed for $1 million or more were under contract as of this week, compared with 44 percent of homes listed for less than $1 million, according to Delta Associates, which analyzed data from the local Multiple Listing Service.
“I keep saying to these [high-end] sellers, do you really have to sell right now?” said Michael Briggs, vice president of professional development at McEnearney Associates, a local real estate brokerage. “It’s not hopeless, but it may be more difficult to sell than anyone ever imagined, and none of these regions are immune.”
The toughest challenge is for sellers in outlying suburbs, he said. In Howard County, three out of 130 high-end homes for sale went under contract from mid-May to mid-June, said Briggs, who pulled data from the local Multiple Listing Service. In Loudoun County, six of 107 homes went under contract and only one of 64 did in Prince William County.
Real estate agent Jane Fairweather, who has done her own number-crunching for homes in the close-in Maryland suburbs, said the market for “glamour houses” — those listed for $2 million or more — is at a standstill in Bethesda, Chevy Chase and Potomac.
“More than one-third of the homes that went under contract had at least one or more price reductions,” Fairweather said. “And about 10 percent of the sellers have pulled their house from the market. People just gave up.”
Among them was Anson Smith, a developer who listed a home he built in Bethesda for $2.6 million in September. After receiving only one low-ball offer, he decided to rent the place, convinced that too many psychological factors were holding buyers back.
“People are not comfortable that they’re getting value, because they’re not sure what the house will be worth in a few months or a few years,” Smith said. “Even people that can afford that price bracket won’t buy because they feel it’s the wrong statement right now.”
Real estate agents say that lenders, eager to protect themselves against further losses, are imposing stringent requirements even on credit-worthy borrowers looking to buy high-end homes.
In the Washington area, mortgages that exceed $729,750, or “jumbos,” carry higher interest rates than smaller loans and require heftier down payments — typically 30 percent. Once the loan amount gets past $1.5 million, the down-payment requirements can go up to 40 percent or more.
“They may also need eight to 12 months worth of mortgage payments in reserve to qualify for the best rate,” said Steve Calem, president of Capital Funding Group, a mortgage consulting and advisory firm. “It’s a market for cash buyers right now, and that’s really impacted the sale of bigger houses.”
It’s not as if many people who own those homes are in dire straits. A healthy share of them have equity and are not under tremendous pressure to sell.
But that does not mean that the high-end market should be ignored, said Lawrence Yun, chief economist of the National Association of Realtors. Getting the real estate market back on track means that all segments of it need to function.
A recent survey by the Realtors group found that the No. 1 reason people are not buying high-end homes is because they are unable to sell the homes they own, in part because they are competing with aggressively priced foreclosures.
“If first-time buyers are buying vacant homes, that does not create trade-up buying activity,” Yun said. “They are not freeing up any move-up buyers.”
To help remedy the glut, Tom Kunz, chief executive of Century 21, descended on Capitol Hill with some of his real estate agents. They urged lawmakers to expand a temporary $8,000 tax credit for first-time homebuyers to include anyone who is buying a principal residence. Kunz and other real estate firms also are lobbying to boost the credit to $15,000, as proposed in recent legislation.
“We need to focus on the supply side of the equation versus looking only at the foreclosure side of it,” Kunz said. “By doing this, we can help the economy out of the doldrums we’re in.”
Deborah Johnson didn’t want to wait that long. She remembers the 1980s, when home values plummeted and stayed there for years. With that in mind, and knowing that she will want to move out of the area in the near future, she put her Bethesda home on the market for slightly less than $2 million. Six weeks later, she sold it for $50,000 less than the asking price and a few thousand dollars less than she and her husband paid for it nearly five years ago.
“It was like: ‘What? Depreciation? How can that be?,’ ” Johnson said. “But sellers have to suck it up. Price is the number one factor. After that, the property has to be exceptional from every angle, cosmetically and functionally, to sell. Many sellers can’t wrap their minds around that.”
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