Luxury Real Estate Market is Left Out!
The entry level housing market was aided this year by an $8,000 first-time buyers tax credit, and $6,500 credit available to some move-up buyers. This helped to push resales to 6.1 million annually, the highest since February 2007, the National Association of Realtors reported at the end of 2009.
However, the program can’t be used for homes priced above $800,000. What does this mean for luxury real estate?
Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate and some are turning to so-called short sales to unload properties as stock-market losses and pay cuts squeeze wealthy borrowers.
As defaults on the biggest mortgages rise, borrowers are turning to short sales to exit loans that now are larger than the market value of the house; this is sometimes termed being “underwater”. In such a transaction, the lender agrees to accept less than a 100 percent payoff on a mortgage to expedite the property’s sale.
The Federal Reserve set out in January to lower fixed mortgage rates by purchasing $1.25 trillion of bonds backed by home loans. Conforming loans can be bought by Fannie Mae and Freddie Mac at around 4.81% on a 30-year fixed rate.
The Fed purchases haven’t affected the high end of the market because they exclude so-called jumbo loans. Mortgages above the $729,750 limit set by Congress for the nation’s highest-priced markets cost almost 1 percentage point more than conforming loans; there is no re-finance market for the higher end market
which is outside the Fannie Mae and Freddie Mac network.
What does all this mean? Since there is little political will to bail out million dollar home owners, we predict that luxury home prices probably will drop another 5-10% before reaching bottom.
Tags: jumbo loans, luxury homes, no tax credit
This entry was posted on Monday, March 1st, 2010 at 4:22 pm and is filed under Luxury Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
