“We’re in a ‘trade-down’ environment for the first time since the 1930s.”

-Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.


A front page article in the WSJ divides the residential real estate market into two halves: low/moderate priced homes, and the upper end. The Journal observes:

Housing is fast dividing into two markets: Sales of low- and moderately priced homes are picking up and values have stopped falling in some parts of the nation. But on the upper end, sales remain mired in a deep slump and price declines are expected to accelerate.

Signs of the divide are visible across the country, including in suburban Chicago. In middle-class Schaumburg, Ill., which had a median income of $65,000 in 2007, sales were up 41% in June from the depressed level of a year earlier and bidding wars have broken out on some properties. “I can’t even tell you how many I’ve been in over the last two months,” says Joe Stacy, a local real-estate agent.

While that is one way to look at sales, I am not certain it is the dichotomy I would have chosen.

As to Bidding wars? I have no concrete evidence, but damn! that sound like so much NAR nonsense. Perhaps the agent was being coy when he said “I can’t even tell how many” bidding wars he was in. (Any local RE agents want to weigh in on this?)

There is, however, little doubt that the upper end of the market has not seen improvement. Sales at the high end of the Real Estate market are soft. That is partially a function of limited availability of credit and buyer concern over employment.

In the typical housing sale, there is often a chain of transactions, from the starter home to the larger family house to the bigger move up, on and on to the larger luxury houses. When any part of the chain is dysfunctional, the problem works its way upstream. The upper end was going to feel these effects eventually, and that day of reckoning seems to be here now. (One assumes the giant mansions purchased for cash are less impacted by this).

The lower end of the market, with tax cuts, local incentives (i.e., California) and lots of distressed inventory driving prices down has seen an uptick in activity.  But if we want to split real estate into two halves, I would suggest looking at the following pairs:

• Bubble States / Non-bubble states;

• Distressed/Non-Distressed Properties

• Underwater/Non-Underwater mortgages

I suspect this might provide a better read on the true state of local real estate markets.


High End: More Inventory, Slower Sales


High-End Homes Frozen Out of Budding Housing Rebound
WSJ, AUGUST 3, 2009


Category: Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

26 Responses to “Real Estate ‘Trade-Down’ Environment”

  1. VennData says:

    “Look Honey, formica counter tops.”

  2. Bruce in Tn says:

    Went to a reunion this weekend. One of my wife’s cousins, a realtor in a small town, said after two very bad years in 07 and 08, that this year had been quite good. Interesting…

  3. JimDuncan says:

    Specifically regarding “bidding wars” – I’m a Realtor in Charlottesville, Virginia and have seen and written several multiple offer situations this year. I’ve even written a couple escalation clauses, too. Granted, these are not the norm, but they are happening. Well-priced homes in good (great) condition are selling – usually quite quickly.

    I have friends in the Northern Virginia market who have written about real bidding wars – 10+ offers in hours/days after a property goes on the market.

    Has the national market hit bottom? I have no idea other than I don’t think there is a national real estate market.

    Has the Charlottesville market hit bottom? I don’t think so, but multiple offers are not uncommon.

  4. GB says:

    I rented in Schaumburg in 2007-08 as the wife and saved for our wedding. 2 bedrooms go for about 1200 a month. There are a lot of business HQ there, low property tax, good public schools, a large mall that supports sale tax for the local community, lots of white collars and most neighorhoods are 10-40 years old so most are well established before the boom. We both work in Schaumpton (as we jokingly call it) and were looking at homes there in 2008.

    As far as bidding wars, I believe it’s probably on properties that have dropped 20% or more in value. There are some really nice mid-tier homes there that replaced tear downs built during the bubble, I heard one of these that use to list for close to 700 and sold for 550 this fall. Don’t know the shape of the house but I could see bidding wars on properties like these. I would have. We ended up with a fix er upper in a neighboring town.

    We were looking at a few reos in Schaumburg but they went quick or needed to much work. Again location is everything. But I also saw some older homes that needed updating still sitting on the market from 2007. Amazing what some granite and a master bath will do.

  5. jc says:

    It must be absolute hell to sell an expensive home in the bubble states, not only are they competing with foreclosures – everybody knows about the shadow inventory of foreclosures and they’re just waiting for those chickens to come home to roost. Unless Turbo Tim saves them there will be an implosion in those areas.

  6. danm says:

    For the last 2 decades, we’ve been building larger and more expensive houses so the inventory of samller homes is quite limited. If households want to downsize, it could easily push up the price of the targeted inventory.

    In Montreal, if you wanted to downsize you’d have to either think of changing neighborhoods or in the same neighborhoods going to a smaller home. The move would be fropm downtown to the burbs because the city has become so incredibly expensive relative to the burbs. The price difference is so huge, it would definitely push up the prices in the burbs. If you’re already in the burbs, you don’t have much choice. It’s either a smaller home or off island. Off island is usually a huge issue because of the traffic to get to work.

    The West Island (suburb) was built from the 50s to now. The better located properties are 1950-1960 bungalows which for the last 2 decades have been owned by retirees or start-up families but they are still pricey for what you get because of location and are often in desperate need of renos because of the 2 goups who’ve owned them for the last 2 decades. After that, you have large houses (1800 square foot +)and the newer they are the bigger and more luxurious and expensive they are.

    If a family wants to downsize, it will have to buy either one of those bungalows or a 1970s cottage. 1980s house are very large and now in increasing need of renos. And 1990 to today are unaffordable so would not fall into a downsize category.

    Because of the required renos in the bungalows, the 1970s cottage would probably be the most sought after model, and if everyone is running to these, I could easily see this pushing up the price. And because of the limited inventory, I could easily see bidding wars!

  7. GB says:

    I jumped on zillow. Here’s an example of a tear down they put a brand new mid tier home on. IMO this would be a steal for 500 in Schaumburg. I could see a bidding war starting when the developer has to drop to that level.

    On the other hand Schaumburg looks like it’s getting another wave of for sale signs as it does have a large mix of property types.

  8. danm says:

    Last year we moved to Ottawa, and our goal was to simplify our lives. We wanted a house that was smaller than 2000 square foot, walking distance from ALL important amenities and would permit us to own 1 car only.

    Let me tell you, there was not much choice! And this is in an environement where house prices are still going up and the the downsizing movement has not yet started.

    The reality is that if housholds want to downsize and/or simplify their lives there, is not much housing stock out there that match the criteria of a simple life.

  9. Rikky says:

    i drive through Summit, NJ on my way to work everyday. Northern Summit is a wealthy section of NJ with most houses in the $1.5 to $3 million range. I’ve never seen so many for sale signs. Every block I drive down there are at least 3 or 4, unheard of in this area. Clearly the economy and the fortunes on Wall Street are driving people out of their homes.

  10. danm says:

    Because of the required renos in the bungalows, the 1970s cottage would probably be the most sought after model, and if everyone is running to these, I could easily see this pushing up the price. And because of the limited inventory, I could easily see bidding wars!
    During the last 10 years, these 1970s homes have only gone up 60% vs. most other homes which have gone up over 100%. Why?

    Because they were too expensive as starter homes for young couples and they weren’t big enough or prestigious enough for upsizers.

    They are now the best bang for your buck since they are at an age where everything has had to be redone and since they are smaller the owners have had better means to maintain them properly.

    So I am sure that in North America there is arbitrage to be done between the prestigious vs. down to earth lifestyle.

  11. fat tony says:

    I’m a Realtor in North Jersey. I agree with the article completely. There is an active market for homes priced under 440K in my town. It may be due to the $8K from Barack. There aren’t many buyers in the >600k for single family homes or >500k for townhomes.

    Please don’t ask me to back this up w/data. I’m in LBI on vacation and vowed to stay off the MLS.
    Fat Tony

  12. Mike in Nola says:


    This phenom seems confirmed by this article:


    That realtor whose videos appear on some other blogs mentioned quick sales on some houses that had dropped significantly.

    And, as I noted a few weeks ago, there are constant radio infomercials on Houston talk radio touting the advantages of real estate as an investment over stocks. Considering where they appear, they will appeal to those who didn’t see what was coming and still have no clue.

    I think the buyers are way too early and are clearly drinking the green shoots kool aid, but it’s their money. If the economy doesn’t turn around quickly and rents keep declining, many of these people will find that the rent won’t even cover the notes and they will be in trouble as many are undercapitalized.

    This may be what’s accounting for the slowdown in the decline of the CS index.

  13. larster says:

    GB- I sold my house in Palatine (next to Schaumburg) in May 2002. According to Zillow the value is now what I sold it for. Value in 2006 was $185,000 higher, according to Zillow. On a sq foot basis neighboring homes are close to what I sold for 7 yrs ago. Bidding wars? I think not.

  14. The Curmudgeon says:

    There’s an impossibly easy answer to homes in the “conforming” price range doing better than homes in the “jumbo” range. As the article points out, there is virtually no government money pouring into the jumbo home market. The conforming market is again becoming completely screwed up by the $1.25 trillion dollars of Fed purchases of MBS and GSE securities. So their idea is working brilliantly. How we don’t get that massive amounts of money will queer up prices and demand, the metrics money is intended to measure, is beyond me. If they keep it up, we’ll be right back to 2005, which directly led to 2006, 2007 and 2008, the latter half of which is when they started throwing money at the “problem”. By 2010, they’ll be patting themselves on the back, saying what a great job they did, until the wheels come off (again) because they juiced the supply past the natural demand for housing (again). By 2012 we’ll be back where we started, only this time, the till, after running massive fiscal deficits for the preceding 3 years, won’t be so full, and the government might actually have to let housing of all sorts find its own bottom. At least if the government stays out of the jumbo game, it will likely have resolved by then. The rest of the housing market will be a shambles.

    What a joke this republic has become.

  15. GB says:

    @larster I agree property in the area is overpriced but once it gets down to “deal” level (which is different for everyone) I could see a few bids come in on it. I am not in the real estate business so I only know my limited view of the story. I’d like to hear from an agent how things are.

  16. phb says:

    At this point in the real estate cycle, due to lack of credibility from NAR, it seems to me ALL information is anecdotal at best and wildly inaccurate. No one seems to be accounting for all of the inventory in the “bubble/non-bubble” states that sits static because banks do not want to foreclose and incur upkeep expense/taxes/sales expense. Instead, they wait. In summary, it seems we are in for a long and protracted recovery process with multiple “mini-recoveries” and subsequent pullbacks. Caveat emptor.

  17. chilawyer says:

    Long-time TBP reader, first-time poster; thanks to Barry and the many regular commenters for making this one of the best markets blogs with such great commentary (and with a sense of humor).

    Decided to post today to offer my two cents on the WSJ article. I live in a suburb next to Kenilworth, and see a lot more homes on the market this summer than I have in the last 3 summers since I moved back to the North Shore from the city. While most people aren’t hurting here too much from the recession, the bursting of the housing bubble is affecting the market here too.

    In these communities, an entry-level older three bedroom still typically runs $600K to $700K, and a newer 4 bedroom home is hard to find below $1.2 MM (and many homes well above that if you are a CEO, hedge fund manager, etc.). These are beautiful, tree-lined communities on the lake with excellent public schools where many professionals who work downtown are willing to pay a premium to live. These towns have been built-out for many years, so the only new construction is in teardowns.

    Most of the entry-level homes are bought by couples with kids about to start school moving up from Chicago for the excellent public schools; these buyers now cannot sell their condos or townhouses in the city (which has a massive condo glut now), so they are holding off on moving up, which clearly impacts its way up the chain. Then add the inability to get jumbos with the kinds of terms that were easy to get 3 years ago, concerns about job security, and a 30-40% whack to most people’s portfolios, and you have a market somewhat in paralysis. (And given the sad state of county and state fiscal management, another round of property tax hikes is likely to hit next year, which won’t help).

    But, surprisingly, after seeing very few teardowns start last year (and a lot of homes finished in 2008 still sitting empty), we’ve seen an uptick in teardowns starting this summer, so maybe the builders and the local bankers have some faith for 2010 (personally, I’m still bearish).

  18. danm says:

    In these communities, an entry-level older three bedroom still typically runs $600K to $700K, and a newer 4 bedroom home is hard to find below $1.2 MM (and many homes well above that if you are a CEO, hedge fund manager, etc.). Th
    One thing I noticed every time I went to the US is how much house and car people had for much lower occupations. I would not be surprised that Canada’s 300-500K is the 500-700K in the US.

    I think a lot of it has to do with the lower tax level.

    Since the US has been living way above its means for the last few decades, relative to most socialist countries, I think a convergence is in order.

    If taxes are increased, or the dollar devalued, most Americans won’t be able to affrod the same lifestyle and those 500-700K houses will fall to 300-500K. A lot of people are still able to afford the 300-500K. If houses prices don’t adjust fast enough, there will be a lot more housing starts in that price range.

  19. Pat G. says:

    Hey Mabel, looks like we’ll have to downsize, sell the trailer and move into the shed. Eventually, maybe we can afford one of those tents with zippered, screen windows. lol

  20. donna says:

    I could see bidding wars in a nice area right now. We bought in a down time (early 80s), but had several bids on the house we wanted since it was in a good school district. We lost out on a couple homes before getting this one.

    With older boomers retiring and moving down in house size, this could be a trend we’ll see for a while — who really wants a 4000 sq ft house to clean, anyway?

  21. KyleB says:

    Here in the Hartford, CT area, we are seeing the kind of bifurcated market that the WSJ article describes. My wife and I are active Realtors and have reported on this phenomenon specifically in West Hartford (http://www.amybergquist.com/blog/2009/05/03/movement-in-the-west-hartford-market/). The trend has continued since we originally wrote the post back in early May.

    Additionally, multiple offer situations are common in the lower price ranges in our markets. It may be a stretch to call them bidding wars, however, since it seems that the winning offer is often below the list price (http://www.amybergquist.com/blog/2009/03/23/multiple-offer-madness/). This trend has also continued in our markets since the post was written in late March.

  22. Latesummer2009 says:

    According to these statistics, it appears that the real estate food chain is now crumbling from the top and the bottom simultaneously. The high end correcting slowly (25-30%), thereby causing very few sales and the low end stymied by “one and done” transactions due to bank foreclosures and short sales to first time buyers. Not a good sign.

    The Westside of Los Angeles looks to drop around 50% from peak to trough.


  23. [...] The high end home market is still mired in the muck.  (Big Picture) [...]

  24. Christopher says:

    One can only hope the days of McMansions are gone and dead.

    Chicago suburbs has got to be one of the most ridiculously overpriced areas in the country.
    Shit weather, high crime, horrible traffic, nasty taxes….and for that you get to pay half a mil for poorly constructed tract homes. LOL….what a fucking joke. If that is what is constituting a “deal” than we still got a long way to go down.

  25. [...] is the original post: Real Estate 'Trade-Down' Environment | The Big Picture #arkayne { background: transparent; text-align: left; vertical-align: top; margin: 5px 0px; [...]

  26. vanzeeben says:


    I live in minneapolis & can definitely say that in the lower-end market (maybe under 215) there are major bidding wars, the lower you go. My wife & i bought our first house in February and had 2 rounds of bidding. this was after not getting 2 other houses because they went off the market within a week or so of being listed. We ended up paying $5,000 over what it was currently listed for (we paid $160k), however it was originally listed at $210k. major work is currently being done to make it livable.

    My brother & his wife are looking for something even cheaper than we bought (they’re looking in the low $100s) and are having a bear of a time. They have submitted 3 offers in the past 3-4 weeks and have not even gotten into the bidding.

    we’re also seeing quite a few new split-level homes being built in the high $100s to low $200s and they sure are moving along.

    there’s demand out there, it’s just that most people have the wrong product.