Luxury Homes Now Affected by Down Real Estate Market
I heard today that a recent report showed the median home price in Northern California has dropped in February nearly 46% from a year ago to just under $300,000 dollars, the first time it has gone under that mark since about 1999. Additionally, the report also showed that home sales increased 26% as buyers were attracted to single-family homes in foreclosure, which made up about half of all sales. While home affordability in many of these areas has increased due to the decrease in home values, the luxury home neighborhoods once thought untouchable by this housing market have suddenly begun to feel the pressure of a falling real estate market.
The indicators were all there, I just think we didn’t believe it, or didn’t want to believe it. It was just a couple years ago that many remained bullish on the luxury real estate markets due to the growth in $100,000 incomes, which at the end of 2006, where growing 5.4 times faster than all US households. However, over the last few months, as the ‘days on market’ began to increase, so did the number of homes listed for sale.
As reported by KCBS radio, the sale of these high end homes in Northern California neighborhoods like Los Gatos, Saratoga and San Jose, have been drastically reduced. Once thought of as the high-tech executive neighborhoods, many of these homes that were listed last year have seen price reductions of up to 50% in some cases…and still no sales! To make matters worse, with a reported 165 million-dollar-plus homes for sale in the Los Gatos neighborhood, and 137 in Saratoga, neighbors are lowering their prices to keep up with newly listed inventory that is priced to where current market values are thought to be.
As with other housing market across the country, the lending requirements have made it more difficult for everyone to qualify for a loan. The million-dollar-plus loan is no exception, as most luxury home loans in this market will not be able to take advantage of any of the programs that may be available at lower cost purchases. Even with a large down payment, many banks are still apprehensive to take the chance while home prices continue to fall. In one case, a purchaser came in with 45% down, but the bank still wanted more money down and eventually declined the loan.
One obvious factor that may help off-set the struggling luxury housing market, will be the addition of major banks that will re-enter the jumbo loan arena. Just today, it was reported that Bank of America is among one of the major banks rolling out jumbo mortgage programs and holding the loans in their own portfolios. Bank of America promises to offer loans from $730,000 to $1.5 million with 30-year fixed rates under 6 percent. However, borrowers must make a 20-percent down payment, have good credit, provide proof of income, and hold six months' of principal, interest, property tax, and insurance payments in reserve.
