For the past ten or more years we have been serving the real estate needs of clients who are either buying or selling million dollar-plus homes. Not until 2011 did we start to notice a significant increase in foreclosures of million dollar-plus homes – homes that are underwater. Here are the current stats from ForeclosureRadar for the Bay Area. In 2011 there were 1,500 million dollar+ homes scheduled for auction. This was double the number for 2008. And, these numbers don’t reflect the high-end homes being sold for less than is owed which are not shown as foreclosed.
The question our clients are now asking is, “Is this a trend or just a momentary spike?” We believe it may become a more significant aspect of our Bay Area real estate market for next two years unless solutions to the house crisis are enacted. So, what is causing the high-end housing market to move into the world of foreclosures? Here are three of our answers the question; 1) The length of the recession; 2) The luxury home owner’s dwindling resources; 3) and, Jobs.
Recession: Yes, the current recession feels as if has gone on forever, and FEAR is still influencing the housing markets. In fact, it is the longest recession in our country’s history. All of us hoped that home values would begin to rise well before 2012. And, many Bay Area luxury home owners believed that if they could just hang on long enough the economy would take care of home prices. Well, it has not turned out that way. We are still on the tail end of the Perfect Storm regarding housing; fraudulent lending practices; ineffective government policies; home values dropping back to 2001 prices; and, a significant tightening of credit, specifically the ability to qualify for a mortgage.
Dwindling Resources: The demographics of our high-end home buyer are; people 45 years old and above; business owners or high level executives; have reserves such as their kid’s college fund, stocks/mutual funds, retirement accounts, and savings. The challenge this group has experienced the last four years is they could service all of their debt including the mortgage because of their reserves. Since the recession has continued longer than any other in our history they have blown through much or all of their reserves. They now need to either have the bank take the house back or sell it for less than is owed and pay the difference.
Jobs, Jobs, Jobs: Unemployment has been one of the major drags on our Bay Area economy, with the bright spot being Silicon Valley. Because of this factor, unemployed homeowners of high-end properties are in the worst possible position. They have no income and the reserves they spent years accumulating are being spent on their daily expenses and debt, including their mortgages. As you can imagine, it doesn’t take long to just plain run out of money, or come to the conclusion that they will stop making their mortgage payment and live in the house as long as they can – sometimes more than a year. Or, they attempt to secure a loan modification from their lender. Just in Contra Costa alone, there were twice as many Short Sales in 2011 of high-end homes as there were in 2009, according the DataQuick – one of our most reliable real estate information source.
And, to put this topic in its proper perspective, the high-end home foreclosures in the Bay Area represent a small percentage of all the Bay Area homes sold in 2011. It is still a trend to watch carefully, and it is a BIG issue for the high-end homeowners who are now experiencing what the rest of the foreclosure market has endured the last four years. We will report back as to how this trend unfolds in 2012. CONTACT us today for a free price analysis of your home, or for any of your real estate needs. Until next time…Jim Walberg