Two variables: waiting time lengthening for sellers and then receiving less than expected are indicators of a worsening slump!
Orange County’s luxury home market is seeing greater price reductions and closed sales are yielding considerably less than original asking price. These factors are now negatively impacting the multimillion dollar home market in the Orange County, California. It’s increasingly common now to see multiple price cuts on listed homes exceeding $1 million with little or no attraction of buyers. Demand is shrinking for lack of loan availability for the jumbo type loans. It’s repeatedly reported that some lenders are requiring 35-40% down payments for the jumbo type loans.
Real Data Strategies, Brea based consulting firm, determined that from July 2008 to the end of June 2009, homes priced at $1million and more experienced an average price cut of 14.2%. Compared to homes priced at $500,000 and below received an average price reduction of 7.8%. Some Realtors are predicting that home prices will shrink 30% and upwards from the price points in the 2004-05 peak.
Steven Thomas, Aliso Viejo Broker, says from his analysis of the OC market, homes will devalue 35% from their 2006 peak and that confirms Real Data Strategies determinations. Of course, luxury homes priced in the millions actually require an extended time frame to sell in a recession economy. Many other Realtors are suggesting the housing market prices are clearly heading in a downward direction before they reach reality (fair value).
Thomas also reports the breakdown of the OC luxury inventory in three segments of distress:
One: 9.2% of the active inventory between $1 million and $1.5 million are distressed
Two: 5.6% of homes between $1.5 million and $2 million are distressed; and
Three: 1.5% of homes at $4 million plus are distressed.
The damage to wealthy homeowners is that falling property values are putting more of them underwater. Their mortgages have a greater value than the value of the home. As prices continue downward for the high end properties homeowners go deeper underwater. This forces them to sell at prices below today’s levels. Short sales and foreclosures are then expected to rise. In these situations then the lender gets the home and resells at heavily discounted levels.
This scenario spells increasing doom for maintaining equity and protecting home asset values that aggressively appreciated in 2004-2007 time frame.
