While I was seeing properties this week on my broker tour, it struck me that there were some amazing homes simply sitting on the market. I didn’t think these homes were overpriced; in fact, I thought a fair amount were very well priced and seemed to offer good value.
Then it hit me: There are simply less qualified buyers out there for single-family homes, condos, and TICs in the $1.5M+ price range. Upon further investigation, I found plenty of data to back up this trend.
First, the numbers. Here’s a look at how many of these properties sold over the past few years:
2005 574
2006 516
2007 605
2008 540
2009 357
2010 256 to date
High-end purchases in San Francisco hit their peak in 2007, and have gone downhill since then. No surprises there—the economic downturn and mortgage crisis were in full swing by then. Though the luxury market is not dead by any means, it’s definitely hurting. Current stats bear this out: Though there are 54 houses, condos, or TICs in contract with $1.5M+ list prices, there are also 170 active listings in this range. And 123 such listings have been withdrawn since January. So there’s a very low absorption rate right now. Moreover, most homes in San Francisco are selling for less than $1M. Of the approximately 2,692 houses, condos and TICs that have sold this year, a total of 2,120 were sold for below $1M. Only 572 such properties have sold for above $1M. This certainly indicates where the 2010 market is.
What this all boils down to is that loans for $1M+ are simply more challenging to obtain. Though lenders such as Bank of America, First Republic and Wells Fargo are offering such non conforming and super jumbo loans, the lenders are also quite strict about their requirements due to recent economic and employment trends. For example, one lender explained that a buyer applying for one of these loans will need at least 10% of the loan amount in cash reserves in addition to the closing costs and down payment. And the cash reserves can’t be held in any sort of retirement account.
The reason? Buyers at this price point are usually very tech focused, well educated and rely significantly on stock options within their company. Many of these individuals have C-level jobs that aren’t readily available should they be lost. And financial advisors are, in some cases, counseling underwater homeowners to walk away from their mortgages if need be. So lenders are safeguarding themselves against making large loans to clients who may be at risk of losing their jobs. Which explains the importance of the cash reserve requirement (something that wasn’t happening in the boom years).
If current luxury property owners don’t absolutely have to sell their homes, it might be best to hold off until things settle down a bit. But if you have to sell, it’s important for your home to be competitively priced and presented so you can stand out from the crowd.