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| Check back regularly - We will add/edit articles as they become relevant to the current market trends. |
Trading down is the new real estate reality
WASHINGTON – Nov. 17, 2008 – Half a million dollars is, by almost any standard,
a lot of money. But during the past few years, when credit was easy and
regulations were loose, it didn’t seem like all that much to many Americans.
That’s because they were able to borrow huge amounts of money to buy new
homes, often with little or nothing down. And while most homes sold in the U.S.,
even at the height of the housing bubble, were $500,000 or less, rising prices in
most major cities and affluent suburbs around the country pushed the cost of a
three-bedroom home well into seven figures or more.
In fact, in most parts of the country $500,000 has always bought plenty of house.
But the gap between $500,000 and $1 million is more than monetary. It is also
psychological. And during the recent boom years Americans became reckless
consumers, buying cars, houses, clothes and much more that they couldn’t really
afford. The dream of a $1 million home, once so distant, became tantalizingly
reachable.
Now that’s all changed. While certain pockets, such as Manhattan, San Francisco,
and Boston, remain high compared with the rest of the U.S., real estate prices
around the country have fallen dramatically. The downside to this, of course, is
that many people now owe more money on their homes than their homes are
worth. The upside is that valuations are much more realistic – and affordable.
Pain is spreading
That’s because homes priced at the half-million mark – and higher – are now also
beginning to shrink in value. Initially, the properties hit hard by the subprime
crisis were lower-priced dwellings more often than not bought by people with poor
credit. But now, as too many of us are experiencing, the pain is spreading even to
people with good credit and higher incomes.
Until recently, sellers in wealthy neighborhoods were somewhat protected from
the subprime credit crisis and were still drawing buyers with high salaries, good
credit scores, and a cushion of savings. But the problems worsened after Lehman
Brothers collapsed on Sept. 15 and credit markets froze, corporate giants laid off
thousands of highly paid workers, and the stocks that padded the portfolios of the
wealthy plummeted.
And even once seemingly impervious markets such as New York City, Florida,
and California, which had attracted well-heeled international buyers looking to
take advantage of a weak dollar, began to struggle as the global economic
slowdown washed over Europe, Asia, and even the Middle East.
Luxury home asking prices nationwide have fallen 5.4 percent since Jan. 4, and
homes now stay on the market for 148 days compared with 125 days at the
beginning of the year, according to The Institute for Luxury Home Marketing’s
Luxury Market Report, which tracked prices through Nov. 7. The data – compiled
by Altos Research – look at prices in the top 10 wealthiest zip codes in 30 large
metro areas around the country.
Waiting game
“The entry level of the upper tier – the $500,000 price point and up – has been
softening for a while,” said Laurie Moore-Moore, founder and CEO of the
Institute for Luxury Home Marketing, a Dallas-based group that trains high-end
agents. “What we’ve also seen in the last month is huge uncertainty at the very
top of the market. People want to know where are we headed, how serious [the
downturn] is going to be, and what is the duration. There are enough questions
that at even at the top of the market people are waiting and watching.”
Art Tassaro, a Realtor with Friedberg Properties in the wealthy New York suburb
of Cresskill, N.J., said buyers have all but disappeared in the past few months.
Sellers who want their home to move quickly need to be aggressive about pricing.
One method is to average the three lowest sales prices in a given neighborhood
during the past year and then discount that price by another 5 percent, he said.
“If it was bad before, it’s worse now,” Tassaro said.
Buyers’ market
Of course, grim times for sellers can be full of opportunity for buyers, especially
those with cash, he said.
John Marcell, president of Better Mortgage Brokers in Upland, Calif., in San
Bernardino County, said sellers have to discount prices significantly to make a
sale. Most sales are so-called short sales, where the lender agrees to accept less
than the outstanding loan amount to avoid a foreclosure.
High-end homes are just sitting on the market in his area, he said. Entry-level
homes now make up the market’s strongest segment because first-time
purchasers can take advantage of low prices without having to worry about
unloading their existing homes, he said.
“The only sales of million-dollar homes are foreclosures,” Marcell said.