The New Frugality, Less Equity and Tighter Loan Qualifications.
There are several reasons why higher price homes are not selling as they have in past markets. First of all, you need to keep in mind that higher priced homes are for the most part discretionary purchases. Generally but not always, they are a type of luxury purchase and in our current frugal environment, luxury is not a necessity.
In addition, according to the California Association of Realtors latest survey, the current median cash proceeds received by the seller at the close of escrow in California is at an all time low of just $35,000 compared with $220,000 in 2005. This is a real game changer due to the fact that the real estate market operates on a pyramid type structure. At the bottom of pyramid are the lower priced properties (condos and small starter homes) and then moving up the pyramid are the mid priced (move up homes) and finally up the pyramid even further are the more expensive (luxury homes). For this system to function properly, the smaller homes sell giving those sellers equity to move up the pyramid and so forth and so on. Because the equity position coming out of these sales is so small today, the typical move up pyramid paradigm is unable to function in it’s normal fashion.
Another factor for the slower pace of sales in the upper end are the tighter loan qualification parameters. Because lenders are so conservative and have such an aversion to risk, full documentation loans to the nth degree are the order of the day and there is virtually no loan product above $729,750. Therefor, the gradual move up market in luxury homes is stalled. Liquidity has been sucked right out of the market place due to the investment communities loss of interest in purchasing newly originated loans.great schools,
Having looked at the reasons as to why this market segment is stalled, an astute buyer still has to ask the question, is it the right time for me to purchase a luxury home? If you’re financially secure and your prospects of employment are stable, this may be literally be a once in a lifetime opportunity to take advantage of the luxury home market. Home prices are down, property taxes are down, interest rates are at historically low rates and the selection in this price range is as good as it gets. But most importantly, if you have a traditional family, blended family, extended family or are thinking of having a family, a luxury property is not so much a luxury but a necessity. Along with a luxury property comes great memories at home , a safe neighborhood, community and the simple fact that your children are able to attend the best public schools.
