Smaller is better for homebuyers
Higher demand for modest homes suggests a shrinking gap between rich and poor.
ANTIOCH, CALIF. — In the garland of exotic cities that make up California's Bay Area, Antioch is perhaps exceptional only in the fact that it is so unabashedly normal.
There are no dotcom millionaires here, no world-famous institutions of higher learning, no cafes peopled by beatnik poets. This is a world of cul-de-sacs, 7-Elevens, and the smell of charcoal briquettes - a slice of unassuming Americana, more St. Louis than San Francisco.
Yet as America's ambivalent economy pauses, this forgotten city is the region's hottest housing market - and a bellwether for the country. While the crumbling silicon empire has left million-dollar mansions unsold, sales of modest homes have accelerated.
For California and the rest of the nation - where the trend is present, but not as pronounced - the change represents a reversal from how things were even a few months ago, when high-end homes drove the market. Moreover, it's an indication that the gap between rich and poor, exacerbated during the last decade, may be gradually narrowing.
"In the 1990s, the gap ... got wider and wider, and it was only at the end of the '90s that the economy seemed to kick in for the lower-income people. These statistics bear that out," says John Karevoll of DataQuick, a real estate research firm in La Jolla, Calif. "As of earlier this year, [the gap] started to get narrower."
Indeed, statistics from DataQuick and other sources suggest that many housing markets across the Midwest and Northeast, in particular, have seen the same shift as the Bay Area.
One Realtor in the Chicago area says slow sales have left her with a larger inventory of million-dollar homes than at any time in the past several years, while another on the blue-collar South Side says homes are still moving quickly and getting multiple offers. In Maryland, an agent notes that her sales are up 18 percent, largely because low-end sales have remained brisk, as high-end homes have slowed.
Nationwide, sales of homes with three bedrooms rose 17 percent last year, while sales of four-bedroom homes ticked up only 2 percent.
"The fact that three-bedroom homes rose at a faster rate is significant," says Lawrence Yun of the National Association of Realtors in Washington. "It shows that the drop in the mortgage rate is bringing in a lot of first-time homebuyers."
Clearly, though, the shift is most prominent here in California - and most evident in contrasting cities such as Antioch and Atherton.
Along the winding and graceful streets of Atherton - the seat of many silicon magnates - sunlight filters through the canopy of eucalyptus and live oak like lace. Brick walls encircle the demesnes of America's highest caste, enthroned in homes that tend toward the palatial.
Yet, there are also signs of decline; like the boom that made this one of the nation's most prestigious addresses, the trappings of wealth in Atherton are fickle. Next to the most opulent mansions often stand lots of little more than tufted grass, the site for a builder who didn't act before the market fell.
Houses that once would have sold in less than a week are now sitting. Some sellers are even doing the unthinkable: lowering their price.
One nearby home recently remained on the market for six months at $1.4 million. When the owners dropped it under $1 million, they had six offers in three weeks.
"Last year, you couldn't find anything under $1 million in Los Altos," says Tom Rourke, an agent at Century 21 Fine Homes and Estates in Menlo Park, Calif. "Now, there are 28 homes.... The [buyer's] attitude in a lot of ways has become: Wait and see if they reduce the price next week."
Across the Bay in Antioch, though, builders can't build fast enough. Among the rolling fields of maize-yellow grass, construction equipment churns the earth into countless new subdivisions, and concrete foundations dot the landscape like scores of terrestrial lily pads.
The lure is the price.
"One-third of our sales in Pittsburg and Antioch are because people are going to [other areas] and getting sticker shock," says Richard Lueck of Diablo Valley Realty in Concord, Calif. "You get about 25 percent more house for your money out there."
The same is true in often-overlooked areas of Los Angeles like Compton and Inglewood, which have seen their markets improve significantly. In fact, the price for entry-level housing statewide rose by 15 percent in the past year, whereas the tag for premier homes jumped by 3 percent, according to DataQuick.
For some brokers, the health of this low-end market has been crucial. "We're doing OK, but if we didn't have the lower-priced homes, we'd be hurting," says Bob Baldwin of Red Carpet Realty in Concord, Calif.
In other places around America, the flip in the housing market has not been as severe. Chicago, for example, has pockets that have continued to do well in every price range, and the South and Rocky Mountain West have so far largely dodged the downturn.
But Jill Steward is already seeing California's shadow in Chicago's western suburbs. The Realtor at Baird & Warner has a 13-month supply of million-dollar homes in Hinsdale, Ill. - the first time she's been in double digits for a number of years.
"The people who are upgrading have probably pulled back a little," says Ms. Steward, adding that the lower end "has not slowed down as much.... Young people tend to be much more optimistic and much less concerned with economic factors."
So long as mortgage rates stay low and the stock market remains volatile, others add, the trend is likely to continue.
"We don't feel it quite like California, but we've definitely had a slowdown in the upper end of the market," says Connie Morrissette of O'Conor, Piper, and Flynn in Annapolis, Md.
"With the stock market, people are more cautious."