Beating Expectations

Though rising prices means there are a larger number of homes defined as high-end, there are also more buyers in this sector. Many now view real estate as a solid investment and are willing to put more money into it.

“The most obvious long-term trend is there is increasing demand for upper-bracket homes in the Twin Cities metropolitan area,” says Mark Allen, CEO of the Minneapolis Area Association of Realtors. Allen notes that a strong corporate environment in the Twin Cities, including a high number of Fortune 500 companies per capita, means that there are many people locally who can afford luxury homes.

“Home prices in general are increasing, so you’re going to get some creep as houses grow in value, and there is more of a demand for luxury housing in general,” Allen adds.

Another feature of the market is that upper-bracket homes can be found throughout the Twin Cities, so buyers have many location choices. No one is surprised to hear of multimillion-dollar houses selling on Lake Minnetonka, near the Minneapolis lakes, or in the Crocus Hill neighborhood of St. Paul. But luxury homes also are found in Eden Prairie, Prior Lake, Lakeville, Blaine, Andover, Stillwater, and western Wisconsin, says Todd Shipman, an agent with Sky Sotheby’s International Realty in Edina, who is past president of the Minneapolis Area Association of Realtors.

Lately, South Minneapolis and the western suburbs have been the busiest geographic areas for Sky Sotheby’s. And at the start of the year, the Lake Minnetonka area was already off to a fairly active start, Shipman notes.

“If you look at the Twin Cities compared to the nation, we’ve always been a healthy market,” Shipman says. “It’s the diversity of corporations and companies and small businesses here, which leads to success for executive-level people. We don’t see the shifts in the market based on one industry or another. And we don’t see the highs and lows and peaks and valleys in the values of homes.”

Market Segments

Though the overall luxury market boasts healthy numbers, the fitness of high-end builders depends on the part of the luxury market in which they do the most work. Builders who work in the upper stratosphere—constructing $2 million–plus homes—have generally experienced steady demand for new houses in the past few years.

But business has been more erratic for builders who develop homes in the $800,000 to the low $2 million range. Instead of working on grand new dwellings, many of these builders have derived large portions of their work from major remodeling projects. “We have remodeling years and new construction years, and this seems like it might be a remodeling year,” says Bob Michels, president of Bob Michels Construction, Inc., a home builder based in North Oaks.