For wealthier Americans, the free-fall in stocks is not only ravaging their portfolios—it's taking a huge bite out of the value of their homes.
"The high-end market relies on equities," says Walter Molony, spokesman for the National Association of Realtors. "If stocks are doing well, so too does high-end housing."
Though only 2 percent of the overall housing market, high-end home volume sales have seen a dramatic drop, according to Molony. Homes valued at $750,000 or more plunged a whopping 47 percent in the year ended in November. By comparison, sales of homes valued at $400,000 or less fell by only 3 percent during the same period.
A look at the markets during the same time period ... the S&P shows a 37.5 percent drop in value.
Real estate professionals agree that sliding markets and a ravaged economy are hurting prospective high-end buyers and sellers. And that means prices will likely decline even more before there is any recovery. ...
While equities and the economy are reasons for slower sales, the rise in jumbo loan rates is another, says Greg McBride, Senior Financial Analyst at Bankrate.com. "More money down is the big reason people aren't taking them out," McBride says. "It takes good credit but you need 30 percent down or more and even those people are paying an interest rate of more than 7 percent." ...
In the past, foreclosure rates have been much lower on jumbo loans in comparison to conforming loans. But jumbo's are a higher risk for lenders, because if the jumbo loan defaults, it's harder to sell a home, especially a luxury home, for its full price.
Thursday, February 05, 2009
Luxury homes feeling the pain
CNBC reports that sales of high-end homes are declining faster than most: