Bloomberg reports ‘Millionaire Homes’ May Lose Value Until 2012
“Tighter lending standards and the lack of cheap financing for these borrowers continue to be key issues,” the New York- based analysts wrote, referring to “jumbo” mortgages. That’s after so-called interest-only and option adjustable-rate loans were a “major driver” of soaring values, they said.
The government’s moves to aid the housing market include the Federal Reserve’s mortgage-bond purchases to drive down interest rates; President Barack Obama’s “Home Affordable” loan modification and refinancing programs; and new tax credits for some first-time buyers. None of the U.S. initiatives “directly focused on helping the sales of these so-called millionaire homes,” the analysts wrote.
“Currently, we have national home prices bottoming in 2011,” they said. “However, prices for more expensive homes may not bottom out until 2012, and ultimately result in peak-to- trough declines in excess of 60 percent (compared to 40 percent nationally).”
“California is probably worse than other states, but higher-priced homes in general are going to be a problem,” Sim said in a telephone interview today.
Calculated Risk adds:
Most of the low end sales are "one and done" (the seller is a bank), and this will lead to a dearth of move up buyers. This lack of move up buyers, and tight financing will impact demand for the mid-to-high end. Although the percentage of foreclosures will be less in the high end areas than the low priced areas, the foreclosures are still coming (see Alt-A Foreclosures in Sonoma and Foreclosure Resales: Slow in High Priced Areas )
However I disagree with the JPMorgan analysts on the relative price declines. Prices increased more in percentage terms in the low priced areas of California (like the Inland Empire and Sacramento) than in the high priced coastal areas. So prices will probably fall further in percentage terms from the peak in the low priced areas.
Also, I think the price declines will occur over a longer period in the high priced areas (like the JPMorgan analysts), so the nominal price declines will be less (assuming a little inflation). But those are minor details - I agree there are further substantial price declines ahead.
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