High End Homes Struggling in South Florida

Prices and sales figures for these high end homes are so far down that, according to Fortune Magazine, lenders, in addition to sellers, are desperately searching for exit strategies. Many consider auction sales the quickest way to offload these white elephants.

They may ultimately be dumped in the marketplace at values far below asking price. For example, CNN Money recently mentioned a Boca Raton mansion that, after spending three years on the market at a price tag over 20 million, was auctioned for just over half that amount. While the original owner got hurt, the bank that owned the property received some recompense, and the company that auctioned this high end property came out as the big winner.

Everyone is affected by falling property values.

Lower income families are no longer the only ones affected by foreclosures. Wealthy, or formerly wealthy people are faced with the same falling property values as those with less wealth. After all, when the real estate market falls in value, it’s not just lower cost properties that are affected. It’s all real estate. High end homes may still be high end, but the demand for them is proportionately far lower. Fewer people have incomes that can cover the monthly cost of a mortgage on a home that sells for a million dollars or more.

When the financial services industry took its recent hit, many of those used to taking home high six or seven figure incomes suddenly found themselves unemployed. It only takes a couple of months of no income to put a million dollar property into arrears. Because of the glut of high end homes on the market, and the lack of buyers, these luxury homes can languish for months, or years at a time.

Checking through the multiple listings in South Florida, there are 708 homes between Boca Raton and Delray Beach, 347 in Fort Lauderdale, and 597 between Miami and Miami Beach that are listed at $1 million and up. Since May of 2009, fewer than 220 homes in these cities have sold within this million dollar price category.

Unlike lower cost homes that are often purchased with subprime loans whose changing interest rates may overwhelm owners, higher end homes are almost always purchased with prime loans at fixed interest rates. However, according to the Mortgage Bankers Association, prime loans currently make up 1 of every 3 foreclosures. Five years ago, that number was 1 out of 5. In addition, delinquency rates on prime loans are increasing. In today’s market, such a figure points toward eventual short sale or foreclosure. Robert Toll, the CEO of Toll Brothers, the luxury builder, recently predicted an increase in foreclosures of higher priced homes.

To foreign buyers who are flush with cash, this overstock in high end homes represents an opportunity to invest in the American luxury market for pennies on the dollar. Some of these properties will be purchased as second homes; others will be purchased as investment properties that will be flipped, at a small profit, to the first wave of those who find success in the next economic upturn.

Written by Marc Jablon, Realty Associates
marcjablon@yahoo.com / 561 / 213 – 6139
www.MarcJablonHomes.com