What Do We Want? Gradual Change! When Do We Want It? In Due Course!

The average property owner will turnover a property once every 8 years. This of course means that many people in the US property market wishing to sell are doing so in the ordinary course of their lives, for a variety of reasons, none of which have anything remotely to do with defaulting on their mortgage repayments.

This continual source of supply in the property market competes with those actually struggling with distressed property, and with buyers having been sorely missed from the market for the past few years; all sellers have had to reevaluate their sale price. In the case of distressed property, the short sale in these conditions is even faster in coming. When it is a luxury property in the balance the multiples are far too imposing to hesitate – a buyer must be found.

Short sales of luxury property made up almost 20% of the US property market in the first half of 2010. Compared to their frequency in 2009 of 9%, it’s reasonable to find that the top end of town is coming under slight pressure. With foreclosure rates on jumbo loans above $417k being twice that of their government sponsored conforming cousins; this contention can hardly go unnoticed.

Apart from the classic reasons for a short sale on a luxury property, the market for the luxury niche is all the more weakened by the self regulation that the banks have adopted in their lending practices and the vigilance that the FDIC and the market in general has with respect to mortgage lenders. With these tighter controls many borrowers are finding that lending criteria is far stricter and that they simply don’t qualify for the loan that they would have easily managed 3 years ago. An additional factor is that in the past, when mortgage commitments became terse, one could approach a competing lender to refinance the loan and relieve some strain. Of course this is a luxury not afforded most people as many are fortunate if they have indeed maintained a financial relationship with one lender to date, let alone two. Such has been the carnage wreaked upon the US property market in recent times.

This conundrum is clearly evident in the luxury property MSI metric (Months Supply of Inventory). The MSI measures how long the present volume of luxury properties will take to be absorbed by the market at the prevailing success rate. Homes with values over $750k had an MSI of 18 months in 2007 while suffering the full force of the sub-prime mortgage crisis. In 2009, the MSI for these luxury homes escalated to 40 months. Buyers of luxury homes are in their element.

While the pessimists may infer a worsening of the luxury home market, it can also be found to be more of a graceful return to the norm. Luxury properties typically rely on capital growth and so produce very little comparative rental return. Further they are often owned by individuals with complex wealth distribution, and so foreclosure was able to be avoided for a longer period than what the average American was able to deflect. While not exclusively, the sub-prime mortgage fiasco primarily affected the conforming loans market of property valued at less than $400k. It took some time indeed before the entire market was weighed down by the momentum of the lower end. Therefore, in 2009 we find an eventuality that ought to have been quite expected in that the luxury market came under considerable duress.

Category : Distressed Luxury Real Estate News &Luxury Short Sales