Rich buyers snap up home bargains
Sales of $1 million-plus homes soar. Even with prices at rock bottom, only the wealthy can act.
This post comes from Marilyn Lewis of MSN Money.
Wealthy homebuyers are scooping up real estate like there's no tomorrow.
Chortles CNNMoney, in a story this week about the phenomenon:
The rich are different from you and me: They're buying real estate.
After four straight years of declines, sales of million-dollar homes and condos rose last year in all 20 major metro areas, according to DataQuick Information Systems. On average, these cities saw an 18.6% jump in high-end home sales.
Otherwise, sales fell last year by 2.8%. Post continues after video.
Wealthy buyers are reaping profits from rising Wall Street stock values, which have nearly doubled since March 2009.
"It hasn't been a good six months for all people, but it was a good six months for rich people," said Glenn Kelman, CEO of Seattle-based real estate brokerage Redfin. "When Wall Street goes up, rich people buy homes."
The rich don't need mortgages
"Higher income households are feeling better about their financial security," Bankrate.com economist Greg McBride told CNN.
As their confidence soared, the wealthy took advantage of bargains in expensive homes. An average seaside manor on Jupiter Island, Fla., that might have sold for $4 million in 2006 cost less than $3 million last year. The Brentwood bungalow in L.A. was $1.5 million instead of $2 million, and that Scarsdale colonial fell to $1.1 million after gong for $1.5 million four years ago.
Also, the cost of jumbo mortgages is falling. Jumbos are loans over $417,000, generally, and over $729,000 in some high-cost metro areas. (Look up jumbo limits in your area here, at HUD.)
A couple years ago, buyers of jumbos paid 1.8 points (a point is 1% of the loan amount) more than those who got smaller "conventional" loans, which were considered lower risk because they had government guarantees. Today jumbos cost just 0.6 points more, saving about $780 a month on a million-dollar mortgage.
But what's all this talk of mortgages? Being rich means you can pay cash. And, according to The Associated Press, the wealthy are paying cash for foreclosures at all price points in Washington, D.C.
… the momentum is coming from cash-rich investors who are scooping up foreclosed properties at bargain prices, not first-time homebuyers who are critical for a housing recovery.
The number of first-time buyers fell last month to the lowest percentage in nearly two years, while all-cash deals have doubled and now account for one-third of sales.
And the rest of us?
Perhaps you're wondering why, with home prices so low, sales to the non-rich are still lagging.
- Calculator:Should you rent or buy?
It's because lenders have tightened their standards so much that many average buyers can't get a loan. Says the AP:
"The cash-rich investors can come in and get foreclosed properties at incredibly favorable prices," said Paul Dales, senior U.S. economist for Capital Economics. "The average Joe can't take advantage because they simply cannot get the credit to buy."
For you and me, it's a bad situation and it's about to get worse. Now, regulators are hashing out how to comply with the Dodd–Frank Wall Street Reform and Consumer Protection Act, and experts predict that, in three to five years, most borrowers will need a 20% down payment for a mortgage or they'll face considerably higher rates and fees. Exception: Qualified low-income borrowers may end up being the only ones eligible for government-supported loans.
- Calculator:How much house can I afford?
The plight of the average homeowner continues to worry economists. CoreLogic reports that by the end of last year 11.1 million homes -- 23.1% of all residential properties with a mortgage -- were "underwater" (worth less than their mortgages).
Snarfing up mansions
At the same time, in city after city wealthy buyers are on a real estate shopping frenzy. The biggest growth was in San Jose, Calif., center of the incredibly wealthy Silicon Valley. There, sales of homes over $1 million grew 27.4%. Some was attributed to bracket creep, as the heated market pushed more homes into the million-dollar category.
But in other cities, bracket creep played no part. In Honolulu, high-end home sales grew 26% last year; in Washington, D.C., 20%; in Los Angeles, 20%; in San Diego, 14%; and in Nashville, 13%. The smallest increase was 0.4%, in Phoenix. CNN says:
In New York, where volume grew nearly 25%, high-priced home sales were driven by bonuses on Wall Street. Even though bonuses were slightly smaller last year, they still topped $120,000. And that's just the average; many employees brought home significantly more.
Look all you want for a silver lining for the little guy, but there is none. Concludes CNN:
… it does not necessarily mean good times are ahead for the rest of the market. In fact, the rest of the market is facing a potential 25% drop in prices and stalling sales.
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