A Closer Look at the Upper End Market

Call them McMansions, Trophy Homes, Dream Homes.  The Upper End market over $750,000 in Anchorage is a cautionary tale, indeed.  There are 19 million dollar plus homes for sale in Anchorage and they are absorbed at less than half a home per month.  In other words, we have a 49 month supply of million dollar homes for sale.  Although they represent only 2% of our available inventory, these dream homes, like the ones in California, Arizona and Florida, get a lot of bad press and frequently are subject to a higher percentage of discounts when they finally do sell.  Drop down to the $750,000 to one million mark and the market looks a little better with only an 18 month supply with an average of three sales per month in this category.

So what’s wrong with this market?  Why do so many of these homes fail to sell or only at a finally reduced asking price?  Calculated on a price per square foot basis, many of them are no more expensive than $500,000 homes but are chock-filled with expensive amenities. Yes, we have fewer buyers who qualify for high-end mortgages but we also have AHFC conventional financing available for mortgages over $650,000 at rates below 5%, a rate unbelievable only a few years ago.  Anchorage move-up buyers have lots of equity in their existing homes thanks to an average 45% appreciation over the past decade.  So why don’t these homes sell?

When a product doesn’t move off the grocery shelf, it’s either the product or the packaging that’s wrong. In the case of our upper end homes, it’s almost always the product.  Unfortunately, there are two significant missteps that have occurred in this price point over the past decade when the majority of these homes were first built.  First, many of these homes have been over-customized to meet the whims of the owner.  It’s hard to say no to custom painted purple walls if you love purple or to Italian marble from a quarry you saw on a trip to Italy.  But if you opt to over-customize your home,  then you better plan on living in it for a very long time for what you like may not be what a future buyer envisions in her dream home.  Over customizing even a million dollar home creates cosmetic obsolescence and in many cases functional obsolescence as well, as in racket ball courts or other features not usable or wanted by other would-be buyers.

On the other end of the spectrum is the over-blown speculative house whose builder simply made a stock plan larger by increasing the size of the rooms.  These homes sold well during the hey day of the mid 2000’s but now face average price per square foot reductions as floor plans have changed to reflect a more casual lifestyle.  Many of these homes have unused living and dining rooms and are not located on prime homesites.

So what does work above $750,000?  If you’re a buyer, look for unobstructed views either of the mountains or inlet.  Look for a larger than average lot which is usually a minimum of at least a half acre or a home on a dedicated greenbelt that provides you with visual open space.  It always amazes me that someone willing to spend a million dollars on a home won’t spend $30,000 on an architect who can marry the home design to the lot, the view shed and light which is so important in Alaska. Virtually all homes in Anchorage are well-built thanks to our ever increasing building codes and inspections but buyers walking into a home know intuitively if the home has been well-designed and thought out.

Buyers who can afford to purchase an existing million dollar home almost always have the option of building one themselves. But they should learn from the mistakes of the homes they have opted not to purchase and not over-customize it or make rooms bigger simply for the sake of square footage.  The best advice I can give these buyers is to hire an architect.