Thursday, February 05, 2009

Luxury homes feeling the pain

CNBC reports that sales of high-end homes are declining faster than most:
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.

12 comments:

  1. Renters: Is the jumbo crash we have saved for finally around the corner? Is our fire sale imminent?

    keep fingers crossed!

    ReplyDelete
  2. Just compare the rates for jumbo loans with conforming - currently about 1.5% difference in the interest rates.

    Actually the jumbo market nearly froze up completely in late 2007. Once you cut the price to a point where someone can get a conforming loan with 20% down, the odds of selling improve.

    ReplyDelete
  3. "Renters: Is the jumbo crash we have saved for finally around the corner? Is our fire sale imminent?"

    Yes - this is it!!!

    ReplyDelete
  4. You can also look at MOI for high-end homes. For >$500k in Washington, DC in Dec 2008 there were:

    1007 Listings/117 Sales = 8.6 months of inventory

    And obviously it gets worse the higher up you go. For over $700k, 10.4 MOI, for over $1MM 20.0 MOI, etc.

    ReplyDelete
  5. Wow, I anticipated that someone might argue back that MOI has always been high for high-end homes since there are fewer buyers, so I went back to see if that were true.

    For Washington, DC, here December's # of listings and # sales for $1million+ homes for 2006, 2007, and 2008:

    2006
    196/38 = 5.16

    2007
    236/45 = 5.24

    2008
    341/17 = 20.06

    ReplyDelete
  6. Agreed high end is not in good shape. And to think - DC is the 3rd best market out there (Arlingon & Alexandria 1M+ look better).

    Look at the picture for these poor saps out in PWC

    2005
    10/53 = 5.3

    2006
    4/95 = 23.75

    2007
    0/85 = Infinity

    2008
    1/68 = 68.0

    I guess there is "miraculous" improvement from 2007 to 2008. Still, god help them!!!

    ReplyDelete
  7. Actually Montgomery and Fairfax are doing better, around 17 or 18 MOI for Dec 08.

    ReplyDelete
  8. Anonymous,

    That is interesting because of the 85 people that wanted to sell their houses in 2007, either they dropped under the next price tier and sold, or many took their homes off the market. So for the 67 unsold 2008 houses sitting there, there are an additional 20 or so houses that the owners would like to sell that are not on the market.

    ReplyDelete
  9. "That is interesting because of the 85 people that wanted to sell their houses in 2007, either they dropped under the next price tier and sold, or many took their homes off the market."

    Not necessarily - there are 11 intervening months when they could have sold - the question then becomes how many in the 11 intervening months would be new listings?

    ReplyDelete
  10. "Actually Montgomery and Fairfax are doing better, around 17 or 18 MOI for Dec 08."

    Your right - good catch. So the top 5 sellers in the 1MM range are

    1. Alexandria
    2. Arlington
    3. Fairfax
    4. Montgomery
    5. D.C.

    ReplyDelete
  11. Your blog grows tiresome.

    Touch my monkey.

    Now comes the time on Sprockets when we dance.

    ReplyDelete
  12. Your blog pushes me to the point of insanity...there I am insane now.

    ReplyDelete