I know I must sound like a broken record by now, but the high end of the housing market still has a long way to fall. This was repeated again in a WSJ article yesterday about how as there are signs of activity in the low-end of the real estate market, the high end market is still not trading.
Interestingly, however, is that the smaller fraction of high end real estate could still drag the economy down with it. While sales of existing homes priced over $750k account for only 2.3% of all sales in the first quarter this year, “the top 10% of US households in terms of income accounted for 23% of consumer spending in 2007.”
“As those households watch their home equity evaporate, they are more reluctant to spend on housing upgrades or other items.”
So, be careful by the headlines you see about increased activity, folks. It may be good for one town over another, but the economy as a whole still has a lot weighing on it.
*image source: wsj.com
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You are bang on with your assessment of the situation.
Actually I had a discussion with Bank Of America today on just this topic and here is the official word from Charlotte.
The bank is not going to lend more than $2M on a property.
So if you talking about a $5M house you need to come up with $3M cash.
There are some lenders that may consider a loan more than $2M but the rate would be close to 9% interest and 4 points upfront.
So if you have a high priced property and need to sell, good luck with that.
Why should the average guy care?
How about the property taxes the $5M homeowner pays? In Florida its around $100K a year. If that doesn’t get paid or his house’s new value is $3M then someone’s going to have to make that tax money up.
How about the value of your home?
regardless of whether your home is worth $200K or $2M if the $5M house guy (who was probably at 410M 2 years ago) has to sell for $3M that makes all other properties worth less as well.
The high end is coming down and it’s going to cause trouble for everyone