“So what in the world happened to my home value”? That is what many of the upper bracket homeowners are asking in the $600,000 to million dollar plus home segment. The good news is that Eden Prairie homes have been on a very strong, healthy 5% annual appreciation trend line since the real estate market bottomed out in 2011 for homes up to $500,000. The nationwide historic average annual appreciation for home values has been 4% taking all price points into account since the mid-1960’s. Historically, there have only been two periods of a large deviation from the 4% trend line in the Midwest: the late 70’s through early 80’s and the period of hyper appreciation from 1999-2006 and hyper depreciation from late 2008-2012.
After 28 years in real estate, primarily as a Managing Broker, I have found analyzing statistics can be helpful but have also learned to trust my gut instincts as both an optimist and skeptic. Allow me to take a trip down memory lane to help provide historical context and set up my gut bold prediction for 2018. Are you tempted to just peek to the end? Stop!
I grew up around real estate with Mom and Dad as custom builder/designers of luxury homes. My Dad preached that homes eventually sell no matter the market, mostly because land is always diminishing nearby, but still critical to stay ahead of the curve on economic conditions and adjust accordingly. I was actually kind of relieved when interest rates hovered around 18% and inflation stood at 10% at the time I graduated from the U of M with a business degree in 1982. That meant any pressure to join the family business of real estate gave me the easiest escape route I could have hoped. I was ready to venture out to become a CEO of a company someday. Well, 6 months later I became CEO of “Moquist Enterprises” as a go-to floor sweeper and pounder of nails for my Dad, along with part-time Waiter extraordinaire and weekend professional trumpet player.
Fast forward to 1987 after the “real” job market improved I purchased my 1st home, a fixer upper for renovation on a nice street. That purchase ignited my genuine passion for real estate, and thus 1989 became the start of my vocation as a Realtor for the next 11 years and a Managing Broker for the last 17. Did I mention I was still poor and barely qualified for the 1st home? In 1991 I made the smartest decision of my life. I married someone smarter and more attractive so that I could someday end up with kids to match. Even better this 22-year beauty already made more money than me as a Scientist in her 1st job out of college.
My ever-wise wife convinced me to move out of the bubble known as Edina in 1997 with our one-year-old to build in Eden Prairie. In 10 years we had doubled the value of the Edina home and walked away with a nice hefty down payment to again squeak into the new home for $285,000. With rapidly rising home prices we sold that home for $425,000 in just 5 days having lived there for 4 years. We decided if we were ever going to be able to afford a bigger home for the growing family we better jump on another new build opportunity in 2001. So far so good. Then we decided to purchase a townhome for investment at peak prices of 2005. Ok, I talked my wife into it. Thank God we could finally sell it for more than we paid. Having collected 12 years of rent, I have no regrets. Don’t ask my wife, please! She has been begging me to sell. Now for our current family home. It has been sad to watch the value take off like a rocket until 2006 only to see neighbors in recent years sell for lower and lower prices. There was an uptick again in 2013. Then down, down, down. We could sell for far more than we have spent, including basement finish, décor updates since 2001 thanks to double digit appreciation through 2006. For neighbors that bought from 2004-2006 many are faced with whether they’re willing to accept a loss before selling. Here is where my prediction comes into play regarding the upper bracket priced homes. Don’t peek to the end just yet!
What happened to the upper bracket? Let’s trace back to 2012. That was the start of a massive supply of new construction home activity on hundreds of acres in nearly a dozen neighborhoods ranging in price from, you guessed it, the $600’s to million dollar plus homes throughout Eden Prairie. I never imagined that there was so much land or that builders could creatively adjust their designs and pricing down as low as the $600’s. Not only did builders cut into 25% of the sold homes in the upper bracket but the fresh new designs completely altered the expectations of the buyers for all homes. This boom effectively overwhelmed the existing home market like a painful punch to the gut. I told you I would use my gut to make my bold prediction! The reality is the upper bracket segment has performed better than most realize.
As we wind down 2017 the good news is most of the new construction areas are also winding down with scarce lots still available. Now my bold prediction for 2018. With historic low-interest rates and depressed prices, 2017 will mark the bottom for every future buyer trying to make a “move up” move into the upper bracket. It will never again be more affordable. Remember the rest of the market bottomed out at the end of 2011 which coincided with a prediction I made on my web site that year too. Home values and interest rates will both rise making homes less affordable and spark a fire under some of the more cautious buyers starting in 2018. I could not be more confident in this prediction. Only my wife (who is always right of course after 26 years) could make me change my mind!