John Murphy’s MEDINA REAL ESTATE REPORT

During the past few months, the business press has been reporting that many of the nations largest home builders may have to write down the value of their land holdings given the softening in the housing market.   Many builders have walked away from millions of dollars in option money they had given to land owners in order to control that land.

USA Today is reporting that builders are indeed scaling back the land they have.  Land contracts signed in the past couple of years will likely be either renegotiated or the builders will walk away leaving their option money on the table.

For more on the story see here.

Based upon my conversations with some local developers here in Northwest Hennepin County, we’re seeing the same thing as is mentioned in the article.  Land owners continue to think their land is worth a premium.  However, developers and builders are very cautious about bringing to market more $800,000+ luxury homes.  It’s clearly going to take months and months to digest what’s currently on the market.

It was only six months ago that it seems every other week there was a new $100,000,000 condo project announced for downtown Minneapolis.  The developers always got lots of play from the press because it fit well in to the media’s belief that people should live in higher density housing in the city core.

However, what this reminds me of is Wall Street’s pumping of internet stocks in 1999 and 2000 just before the market burst.  $100,000,000 condo projects may be great for the developers - they get lots of press and get to be the talk of the town at important cocktail parties, but for those who purchased one of the condos may well be like shareholders of Amazon who purchased stock at $100 only to see it fall.

To quote the phrase Dick Enrico uses for his 2nd Wind stores, the same could be said for housing.  New construction carries a significant premium today.  The national homebuilders are doing what they can to offer discounts and incentives to get buyers in to a home.  There are some deals to be had out there.  However, if you’re looking to build a custom home in the $750,000+ price range, there are much better values today in the existing housing stock rather than in new construction.

It wasn’t very long ago that when someone was interested in the $750,000+ range, rather than buying an existing home, people would just build so they could get the home they really wanted.  Now, to get the home you really want is going to cost a premium as much as 10-20% above current prices for existing homes.

If a company moves an executive and that executive can’t sell his/her home within a certain time, often times the companies will turn the sale of the home over to a relocation company.  The “relo” company will have the home appraised and then negotiate a price with the seller.  It is then up to the relocation company to sell the home.

I have seen a couple of times now where relocation companies are getting stuck with houses and have to take losses on it.  It will be interesting to see if that perk changes for executives as relocation companies get the short end of the stick when it comes to selling their home.

Also, after walking my neighborhood last week and speaking with home owners who had moved in during the past year, a few people commented on how their relo company would not let them even consider buying a home with any stucco on it.  There are several beautiful homes in this neighborhood and the stucco usually is only on the front.  Nonetheless, these buyers were not allowed to look at those homes because their relocation company would not provide any of the guarantees they normally provide in those transactions.

I spent the afternoon previewing many homes in Medina, Orono, Corcoran area.  It was amazing to see so many empty, dated, ugly million dollar plus homes.  Some of these homes were owned by relocation companies.  They are the companies that come in and purchase the home from an executive so he/she can make their move across country.

I had a sense when viewing many of these properties that perhaps there might be a shift afoot in some of the buyers interest in owning a large home in the country.  Many of the homes I viewed had 5,000+ finished square feet and were situated on 5 or more acres.  The trend in the 1990’s and early part of the 2000’s was to build a custom home on acreage.  It will be interesting to see if that trend continues with $3 per gallon gasoline.

Don’t get me wrong, there were some beautiful homes, and most were occupied.  It’s just that it’s surprising how many were vacant.

Here’s a link to all the million plus properties for sale in Hennepin County Northwest.  (Note, for purposes of this search, I used $995,000 as the baseline).

Every Wednesday morning, Edina Realty Wayzata holds an Exceptional Properties meeting at a home in Plymouth, Wayzata, Minnetonka, Wayzata, Orono etc.  Last week we had an opportunity to preview and discuss strategy for marketing a home in Nantarre listed at $990,000.

This prompted me to look at the housing supply in the upper bracket in Plymouth.  It turns out as of tonight, there are 35 homes for sale over $749,000 — there are only 2 homes pending and one of those is pending at $6.4 million which essentially was for the land at $320,000 per acre.  (That by the way seems to be an incredible price paid.  The buyer is  not known at this time and that property is scheduled to close in December.  Given the softness in land prices, it would be amazing to me that that deal closes).

35 homes for sale and 2 homes pending means there is a 17 month supply of upper bracket homes in Plymouth.

Given that long term rates for a 30 year mortgage are around 6.375% this is an incredible buying opportunity for any move up buyers ready to negotiate with these sellers.

In today’s StarTribune there’s an article on housing in Medina. The Strib reports that of the 73 homes for sale in Medina, 20 of them are over 1 million.

If you back out the condos for sale in Uptown Hamel, there actually are 54 homes - including townhomes/twinhomes - presently for sale in Medina. 21 of those homes are priced at $995,000 and higher. Here’s a list of the homes for sale.
Based upon some analysis I recently conducted for the 1st half of ‘06 vs. ‘05, the average price of a home in Medina is up 18%. As developments such as Wild Meadows, Bridgewater at Lake Medina, and Belle Terra, Medina Meadows at Keller Estates, the average price of a home in Medina should stay high.