What’s Up with the Upper End Market?

There has been a lot of conversation recently about the first time homebuyer’s tax credit and its effects on the market. Housing starts decreased 33% in May. But what about the upper end of the market, specifically homes priced at $750,000 and above?

To understand the current status, we need to review what impacts buyers and sellers in this part of the market:

• Ability to get mortgages
• Inventory of homes on the market
• Consumer confidence

While the same 3 factors affect all buyers and sellers regardless of price point these trends affect the high-end buyer a little differently. Let’s take a look at how this group specifically has been affected.



The buyer’s ability to get mortgages: Referred to as “jumbo mortgages” (amounts over $417,000 in most of our markets), these mortgages essentially dried up during the mortgage industry meltdown and readjustment over the past 2 years. Without the ability to borrow money, regardless of financial viability, buyers were unable to purchase unless they were paying with cash. The end result was a significant decrease in demand.

Inventory of homes on the market: Supply increased exponentially with sellers deciding to downsize due to job loss, property devaluation, inability to make hefty mortgage payments or relocation because of a new job. Oversupply was further increased as a result of new construction, which has an extended delivery time in this price point. Builders may have started when the market was more vital, but couldn’t deliver before the market slowed down.

Consumer confidence: With declines in the stock market and the overall economic dissatisfaction, confidence dropped significantly among buyers and sellers in this group. The high end will take time to recover and home builders of quality luxury homes - what will happen to them and their trade?

The Housing Market:
Beyond 2010, builders will emphasize pricing and the move-up market will be tied to mixed use neighborhoods and communities. The high end will always be there. The custom home market will again flourish because of "dreams" and unique locations. Remember - "it is all in the land".