Sellers juggle mortgages in tough market

As upscale homes become harder to sell, some owners are taking big financial hits
BY GITA SITARAMIAH
Pioneer Press

Attorneys Katie and Paul Bergstrom never expected to be shoveling snow this winter at their previous home in St. Paul's Cathedral Hill neighborhood.

Last September, they moved into their dream home on St. Paul's historic Summit Avenue. But the Cathedral Hill home still hasn't sold, even after the couple gradually lowered the price to $649,500 from $795,000.

"You wake up at 3 in the morning and think, 'I have to sell that house,' " she said.

A cooling housing market is forcing the Bergstroms and others to juggle two mortgages. Though no statistics are available to show just how many homeowners are in that predicament, what is known is that the overall inventory of for-sale homes in the Twin Cities area was 30 percent higher at times during 2005 than in 2004 and it's taking an average of 70 days to sell a home in the entire market. That average is unchanged from a year ago.

But homes priced between $500,000 and $1 million had a supply rate of 8.2 months, meaning it would take that long for those homes to become pending or sold, according to a December report by the Minneapolis Area Association of Realtors.

Some homeowners, like the Bergstroms, have resorted to taking out bridge loans and dipping into savings or retirement investments to move on to their new homes. To avoid such a squeeze, real estate agents and bankers warn prospective buyers to put their own houses on the market before buying one and to make purchase offers contingent on the sale of their homes.

Though the Bergstroms knew homes in their price range were taking longer to sell than lower-priced properties, they had witnessed quick sales in their 13 years in Cathedral Hill. They listed their home in June, once they found the Summit Avenue house.

Real estate agents say the slowdown is causing headaches for home sellers in most price ranges.

"No deal in this market today is easy," said Julie Papeleux, a Coldwell Banker Burnet agent in Roseville. "It's a tough market. There's a lot (for buyers) to choose from."

Mark Harritt, a U.S. Bank loan officer in Bloomington, said bridge loans or swing loans are an option, but he doesn't recommend them because of potential additional costs like an appraisal on the current home.

A bridge loan is a short-term solution that is similar to a home-equity loan. Homeowners can take out up to 90 percent of the value of their home and apply it to the house being purchased.

"If you've got a really salable house, it's fine," Harritt said, adding that most homes aren't quick sales at present.

Bonnie Cordy, who sold her Apple Valley town home last summer after it was on the market for nearly eight months, agrees. "The Realtors keep saying what a good market it is, but it is changing," she said.

Cordy and her husband moved to Tennessee last year for his job. They rented an apartment until their new $325,000 house was ready in June. All the while they were making a mortgage payment in Minnesota.

The Apple Valley town home they'd originally listed at $329,900 in December 2004 wasn't selling, even after they dropped the price more than $20,000.

"I felt nervous as we were finishing up the house down here," she said. "There was no way to swing it all."

They dipped into retirement savings for the month or two they had double mortgage payments and taxes.

Then they switched to another agent, who slashed the price another $30,000. It finally sold at the end of August for $291,900, which was about $35,000 less than what they paid in 2003. She figures they lost another $5,000 in retirement savings.

"It's money we'll never get back again," said Cordy, 48.

For nearly 15 years, Charalyn Warman has been buying houses and town homes, fixing them up and selling them quickly without a problem — until last year.

She and her husband sold their South Minneapolis house last March after they agreed to buy a condo that was under construction at Franklin and Nicollet. Since their condo wasn't ready, they found a duplex at 54th Street and Pillsbury Avenue and figured they'd fix it up and sell it until the condo was ready for move-in.

It wasn't that easy. First, the closing of the duplex was delayed because of a glitch — they had to buy the units separately. They didn't move in until May, so they weren't able to fix it up in time to sell during the busy spring selling season. Then their condo was ready for move-in and they had to take over that mortgage Sept. 1.

Now, they're living in one-half of the duplex, renting out the other half and they're planning to rent out the condo. "I didn't plan on having three mortgages at once," she said.

Meanwhile, the one-bedroom condo is for sale at $324,000 and the duplex is on the market for $650,000. They've used the profit on the house they sold as well as some borrowed money to cover the mortgages.

"I'm sitting here hoping, hoping, hoping something will sell," she said.

In St. Paul, the Bergstroms say they have the income to cover their bridge loan and the mortgages on both homes. But they can't take on any other expenses since their financing is tied up.

They can't help but wonder if they should have done something differently. "I feel like if I had listed in early spring instead of June, we might not have had this problem," she said.