The Housing Chronicles Blog: Trouble at the high end

Monday, February 11, 2008

Trouble at the high end

Up to this point in the downturn it's been mostly entry-level and mid-level homes which have been impacted by the credit crunch. Now it seems that it's luxury homes are being increasingly impacted by borrowers waiting for home prices to fall further before jumping in. From an ABC News Nightline story:

People once had to place their names on a waiting list to buy a luxury home, but now owners trying to sell compete with new homes offered at lower prices, bank-owned properties and so-called "short sales," in which a home sells for less than the value of the mortgage.

Compounding the problem, buyers have disappeared because the subprime and 100 percent loans that made so much growth possible are gone.

"The people who qualified for the kinds of loans that bought these houses no longer qualify," said Char Constantino, a broker with Century 21.

Not only do those people no longer qualify, but many who did take risky financing are losing their homes. Foreclosures in Los Angeles were up 381 percent in the last quarter of 2007 from the same period the previous year.

The trend is also impacting celebrity homes, as covered by Forbes magazine recently:

Even Hollywood's rich and famous can't avoid the housing downturn that's sweeping the nation. In Los Angeles, only 4,430 homes were sold in December, down 48% from the previous year. And prices fell 11% to an average $470,000.

Of course, celebrity homes cost much more than that. An entry-level house for an up-and-coming star costs at least $1.4 million in L.A., say experts. Realtor Barry Sloane of Sotheby's International Realty says it's the owners trying to sell homes in the $3 million to $6 million range that are having the most trouble...

When it comes to real estate, stars generally aren't treated any differently than other rich people. Mark David, who runs the celebrity real estate site The Real Estalker says homes generally don't demand a premium just because a celebrity was living there. At the same time, famous buyers are unlikely to get any kind of a bargain, since sellers often push famous folks to pay full price...

At the $20 million-plus end, it's not unusual for houses to stay on the market for months at a time, because there are so few potential buyers.

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