High End Housing The Weak Spot in Housing Market
The lower and middle end of the housing market may be solidifying, a welcome chance to breath for many of us, the top end is showing even more weakness. The Wall Street Journal has an outstanding article here.
A must read if you sell in the upper end of the market.
While subprime mortgages sparked the first round of housing problems two years ago, now “troubles are lurking further up the food chain,” says Joshua Shapiro, chief U.S. economist at MFR Inc. White-collar job losses have accelerated while more adjustable-rate loans to prime borrowers are resetting to higher payments. “You put all that together, it leads me to believe that the next leg down on home prices is going to come from the top,” he says.
To be sure, the affluent housing market is substantially smaller than the mass market. Sales of existing homes priced over $750,000 accounted for 2.3% of all sales in the first quarter of this year, compared to 4.4% of the housing market in 2007, according to the National Association of Realtors.
Still, the distress in high-end market has implications for consumer spending: the top 10% of U.S. households in terms of income accounted for 23% of consumer spending in 2007, according to government statistics. As those households watch their home equity evaporate, they are more reluctant to spend on housing upgrades or other items.
Inventory of expensive homes is rising. Overall, the inventory of unsold homes in June was enough to last 9.4 months at the current selling pace, down from 11 months a year ago, according to the NAR. But the supply of unsold homes priced above $750,000 swelled to around 17 months in June, up from a 14.5-month backlog one year ago. A recent forecast by analysts at J.P. Morgan Chase & Co. said it would take until at least 2012 for the expensive-home market to recover and that peak-to-trough declines could surpass 60%, compared to 40% for the rest of the market. WSJ.com.
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Great blog, keep the great content coming! 
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Comment by M Realty on 3 August 2009:
Im glad the high end market is dying, I feel that the massive expensive houses and McMansions are unsustainable and an overall bad idea. Environmental concerns aside, the luxury homes aren’t good for anyone.
-Tyler
Comment by Brandon Green on 3 August 2009:
Unless you’re running an orphanage, who needs that much house?
Comment by Peter Eisenmann on 4 August 2009:
We are seeing the same trend in Aiken, SC where 4 years ago our luxury home and estates were a large part of the market. SInce they are such a large part of our history I just wonder what their future is…sad.
Pete @ www.rentaiken.com
Comment by Matthew Smith on 4 August 2009:
It is interesting because while we are seeing some of this trending in our neck of the woods, I am seeing a strong market for the purchasing of well-priced high end homes. In the comments section of the WSJ article, one of the commenters stated to keep dropping the price until they sell.
I find that this is definitely the case, especially in a short sale scenario. If you drop the price low enough, even the high end homes sell. Continue to drop the price and document it with MLS listing histories and price reductions and eventually the buyers will come. Then justify your case to the lender and unload the home.
Comment by Gainesville Real Estate on 5 August 2009:
I have a bunch of clients and friends that are waiting on cheap high rise condos in naples, fl. I watch the market regularly through Realtytrac and finanlly there are million dollar units that received lis pedens. There just aren’t any jobs or income to support properties like this in remote places like southwest florida. 9 out of 10 homes are vacation homes and people spend less than 5 weeks a year in them.
Comment by Real Estate Investment Software on 16 August 2009:
Something to keep an eye on for an investment perspective.