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Todd London got plenty of lookers in the six months after he stuck a "for sale" sign in front of his Eden Prairie townhouse, but not a single offer.
The problem: low-priced competition, including three foreclosures down the street priced at $30,000 to $40,000 less, and a raft of incentives being offered by the developer on new, empty townhouses just like his.
When a buyer finally bit, it was for 25 percent less than London had paid three years earlier, with the buyer also insisting he throw in some furniture and pick up his closing costs. "The person who bought it said, 'This is it, this is all we can offer, or we'll just buy a foreclosure,'" said London, who works in marketing at Best Buy.
The moribund Twin Cities housing market is showing signs of a pulse, with pending sales in May up more than 17 percent from a year ago, thanks to a combination of tax credits, low mortgage rates and an abundance of low-priced homes.
But the same forces are proving financially ruinous for many trying to sell and suggest a full-throated recovery of the region's housing market may not be as near as some think or hope.
With nearly half of all homes sold in recent months in some state of foreclosure, the sellers -- usually the lender -- are increasingly willing to cave on price in order to get the house off its books.
Thousands of fire sales are forcing traditional sellers to dramatically lower prices. And because lenders are doing half of the selling, few people are looking to trade up to more expensive houses.
"The banks are selling, but banks aren't buying," said Faith McGown of Coldwell Banker Burnet.
The result: a one-dimensional housing market dominated by first-time buyers. Traditional sellers and those trying to unload upper-bracket houses are being left in the dust. In fact, upper-bracket homes aren't selling quickly because it is becoming increasingly difficult to qualify for a jumbo mortgage, which now have a minimum limit of $417,000.
"The federal stimulus dollars have certainly helped get rid of the bottom of the inventory, but it's doing very little to help with $300,000 to $500,000," McGown said. "There are a whole lot more [upper-bracket] houses on the market than there are buyers."
Adjusting to reality
"There are people who are looking for the really, really good deal," she said.
The Look family in St. Louis Park represents the other side that equation.
With one baby already and more planned down the road, John and Heather Look put their house up for sale two months ago for $269,000, thinking it would be a good time to trade up to a bigger house.
Showings have been few and far between, even with the price reduced to $259,900. Buyers are not interested or not able to pay what the Looks believe their house is worth.
"We had an open house last weekend, and I think only two people came and one was comp shopping," John Look said. He said it's frustrating to have to compete against foreclosed homes that have about the same square footage, but are priced much lower and are sometimes in rough shape.
"I feel that we have a very competitive house in great shape, but when people look they think it's overpriced," he said.
'They want a deal'
But today's buyers are willing to overlook cosmetics if they can get it at the right price, which has fallen sharply since the market's peak. The average sales price through the first five months of 2009 was $189,614, down 22 percent from the same period in 2008.
In a market with steep price declines, buyers think everything should be cheap -- or at least cheaper.
Todd Shipman of Lakes Sotheby's International Realty has worked with sellers who have entry-level houses that have received a lot of attention from prospective buyers, but no offers.
"First-time buyers think everything is on sale," Shipman said. "They're shopping, they want a deal."
Some real estate agents say sellers may have to learn from lenders, who were initially reluctant to reduce prices. Sellers have to take into account that they're dealing with a very savvy group of buyers, thanks to the Internet, and that the market has changed drastically.
"It's very different than the peak of the market when you could have a tree growing through your living room and someone would still buy it," said John Everett, a Realtor with Edina Realty who specializes in Minneapolis and the southwest suburbs.
The house, Everett said, has to be priced "really realistically," which often means less than what the seller was hoping for. "Many people out there ... can't sell for what they bought it for let alone the expenses of selling it," he said.
London, who sold the Eden Prairie townhouse, advised other sellers to take a step back and brace themselves for disappointment.
"There has to be an emotional detachment from the seller from a mental mind set to sell a home because you're going to take a huge loss," London said. But for sellers who can't afford to take a loss and don't have to move, there's another option: drop out and wait.
That's what the Looks plan to do if they get no interest over the summer.
"We're not going to take a loss just to sell our house," John Look said.