Residential Real Estate and Home Sales and Real Estate & Retail

Glut of million-dollar houses driving prices down

June 11, 2007

Diane and Harris Turner walked into the large Lawrence Township home with the gated entrance and instantly loved it .

The spacious gourmet kitchen with adjoining family room, the unique room layouts, elegant amenities, and the privacy all appealed to the couple.

"I like this house specifically. I like the secluded nature of this house," said Diane Turner, looking out onto the nearly 7-1/2 acres of woods beyond the swimming pool. But the Fishers couple is not ready to make a bid. And if they ever do, it likely will be for a lot less than the $1.48 million asking price.

"With the market like it is, we won't buy if it's not exactly what we want," said Harris Turner, executive director of the Frequent Travel Marketing Association, an airline-industry trade group. "We are not in a rush at all."

Buyers in the market for million-dollar homes can afford to be choosy these days, as the softness in the overall market extends to the high end, real estate agents say.

Through the first quarter of this year, home sales in the 13-county Indianapolis area fell nearly 12 percent, according to the Metropolitan Indianapolis Board of Realtors. In the same span, average sale prices slipped 2.6 percent.

Over the past 12 months, about six Indianapolis-area homes priced at $1 million or more have been selling per month, said Mike Woods of msWoods Real Estate.

At that rate, it would take 3.7 years to sell all 241 homes in that price range now on the market.

"That is at least double, probably two-and-a-half times" longer than it should require to sell the inventory of million-dollar homes, said Keith Albrecht of Re/Max Real Estate Groups, the listing agent for the Lawrence Township home the Turners toured.

Hamilton County alone has 107 in that price range, Albrecht said, way above the typical 60 to 70.

It all adds up to an oversupply of high-end homes that's putting downward pressure on prices, agents say.

So buyers like the Turners are in the driver's seat. The couple has toured at least a dozen homes in recent months, but isn't feeling antsy to buy. They haven't even put their existing home on the market yet.

"This is a buyer's market," Albrecht said. The buyer of a million-dollar house "knows what he wants and he doesn't have to compromise to get it. He can wait."

Woods suggests that owners of million-dollar homes who are considering selling instead wait until the market improves.

The high-end market is just a tiny sliver of the overall housing market, representing less than 1 percent of all homes, analysts say. The average listing price for million-dollar-plus homes now on the market in the Indianapolis area is $1.75 million. The average square footage is 7,400.

Even before factoring in the impact of new construction of high-end homes, "it's going to take a while to go through that [inventory]," said Dax Meredith of MetroStudy, a housing research firm based in Houston.

Despite the weakness, the segment has held up better than low-end segments of the market, said Edsel Charles of Market-Graphics ResearchGroup of Brentwood, Tenn.

Hurting the low-end market is a glut of foreclosures. Indianapolis had the third-highest foreclosure rate among the nation's big cities last year, according to California-based RealtyTrac.

While foreclosures aren't usually a problem at the high end, that segment has cooled to a point where builders are thinking twice about launching new projects.

"[Oversupply] will drive prices down [on new construction]," Meredith said. "We are seeing shorter margins."

The profit margin for custom-home builders is typically 12 percent to 15 percent. But Darrell Chism, a builder in Crawfordsville, said he changed his business plan after seeing his margin drop into the single digits.

"You can't pay your bills like that," said Chism, who has upped his focus on commercial work.

Amid the difficult conditions, sellers of high-end homes are doing whatever they can to avoid slashing prices--even throwing in extras like expensive gym equipment or a car.

"In two houses we looked at, they offered us club memberships to The Hawthorns," Harris Turner said, referring to the Fishers country club. He figures they were worth $23,000. "And that's expensive just to get us to buy the house."

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