“A nickel ain’t worth a dime anymore” said baseball legend Yogi Berra, whose sentiment sums up much of the United State’s current real estate market. Talk of the slipping housing market is hard to avoid and home prices have slowed in their increase or dropped in American cities.
With so many homes and neighborhoods being developed and foreclosures flooding the market, it is interesting to question what effect this have on the price of Mid-Century Modern (MCM) homes. In my experience, these homes sell for a premium when compared to similar homes of a traditional style. I believe modern homes are subject to the same market forces as other homes on the market, but there are a few factors that distinguish the market for modern homes.
The home loan market for MCM houses is paradoxical in nature. MCM homes tend to be more valuable than comparable houses with less unique architecture. If there is one modern jewel tucked into a neighborhood of ranch houses, the buyer of the modern home will probably need a strong down payment and/or less favorable loan terms to justify paying a relatively high price for the neighborhood. Appraisers don’t set the prices, but weak comps make financing a relatively expensive house more challenging. Theoretically, these borrowing constraints should result in permitting only the most qualified buyers to purchase a modern home, even though they could afford a larger loan on a non-MCM home.
Difficulty in financing MCM’s is exacerbated by the structural problems that are all to common in Modern houses. That cantilevered master bedroom, as cool as it looks, is going to be a red flag to many lenders. Same goes for flat roofs, Bucky domes, challenging lots, and many of the attributes that make Modern homes appealing. Any home that is unique and not a “cookie cutter” house places the buyer at a disadvantage when it’s time to secure financing.
Demand for Modern homes is surely curtailed by other factor as well. With relatively large amounts of glass, MCM homes are inherently inefficient and more expensive to heat and cool. Houses of from the 50’s and 60’s are often outdated in their systems as well. Frequently, failures in the electrical, AC, heating, and plumbing systems require major upgrades that would unnecessary in many other equivalently priced houses.
With all of these disadvantages, why do Mid-Century Modern homes oftentimes spark bidding wars and set record high prices in neighborhoods? I would suggest the largest factor is the current popularity of MCM homes. There is a limited (and decreasing) number of MCM homes, and an ever increasing pool of potential buyers. This has resulted in elevated prices that are atypical for the industry.
So can we expect our MCM to weather the current slump while more conventional designs continue to depreciate? It’s hard to avoid talk of the home loan industry dramatically overstepping prudent boundaries and offering exotic loans to risky borrowers. In 2001, sub prime mortgages to less creditworthy buyers accounted for only 5% of new home loans. In 2006, that number had increased 4 fold to over 20%! (source) There are currently about 2 million homeowners who are delinquent on their loans. (source) What will happen to all the people who lose their homes? How will the housing market respond to a glut of foreclosures on the market?
Will Mid-Century Modern homes be subject to the current price dip, or are the more sophisticated buyers of MCM properties less likely to default on their loans? Are MCM home truly insulated from the greater housing market?
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