Mark Hanson discusses the disconnect between the high-end and low-end housing markets in 7-1 May CA Housing Update — Mid-to-High End Capitulate
…Here we sit again but this time with the mid-to-high end properties staring into the abyss. They (high end) have not fallen anywhere near what the low-end has mostly because high-end borrowers were given more exotic, high-leverage loan programs such as Pay Option ARMs, 5/1 interest only loans, and 100% HELOCs to live off of. Arguably they have more reserves and better jobs, which have kept them paying for the depreciating asset much longer than with Subprime borrowers. The Alt-A and Jumbo Prime borrowers simply have loans that afforded them more time. But that has all changed and defaults across this space are surging. Foreclosures are coming, but not before the market begins its slide that ultimately will take the mid-to-high end market down 50% to 70% from its peak 2007 levels.
Take a look at the high and low-end graphs from July’s Housing Review. High-end volume is way down. To this, Mark adds:
Remember, volume precedes price. Mid-to-high end sellers remain unrealistic about the values of their properties — likely because so many owe so much more than the homes are worth. But those with equity that are ok with the past 20-years of price appreciation or who know that they can steal a home in another area are accepting offers this selling season far below list prices. Others are opting for short-sales to which the banks are warming up. With rates down and prices down finally, two years of pent up demand in the mid-to-high end market is manifesting in more transactions. This is having the effect of pushing up median prices.
I would add to this that there are certainly a large number of would-be buyers (and their agents) who do actually believe that the housing bottom is near. With stocks up, a stories of multiple offers on properties, and a stimulus package about to start stimulating, many are feeling optimistic.
However, with a huge backlog of foreclosures and rapidly-rising unemployment, this will likely prove to be a false-bottom. Fading optimism could lead to a bloody second half of 2009.
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