Buckhead homes, and those in high-end areas such as Sandy Springs, Brookhaven and Vinings, are experiencing the ills of the housing market just as wealthy communities across the nation are.
Despite some signs that the worst of the U.S. residential housing crisis may be over, many wealthy homeowners are still being squeezed by the combination of weak home prices and the stock market crash. “I think for wealthy homeowners it will get worse before it gets better,” said Dennis Hedlund, founder of iEmergent, a forecaster for mortgage and real estate companies. “I don’t think home prices have bottomed yet. Many people are stuck at the high end, as there aren’t many buyers out there,” Hedlund said of owners of luxury properties.
Currently, there are 545 homes for sale over $1 million in Buckhead, Sandy Springs, Vinings and Brookhaven. Year-to-date, we’ve averaged just over 11 sales per month, compared to 18 sales per month in 2008 and 24 sales per month in 2007. At the current rate over absorption, we are faced with a four-year supply of homes above $1 million.
From California to Massachusetts, the U.S. housing crisis came after years of easy credit and soaring property values.
New data suggest that foreclosures are rising in more expensive housing markets. But foreclosures, once limited to sub-prime mortgages, are growing in the jumbo mortgage category. About 30% of foreclosures in June involved homes in the top third of local housing values, up from 16% when the foreclosure crisis began three years ago, according to new data from real-estate Web site Zillow.com. The bottom one-third of housing markets, by home value, now account for 35% of foreclosures, down from 55% in 2006. 
The report shows that foreclosures, after declining earlier this year, began to accelerate in the late spring and that more expensive homes have more recently accounted for a growing share of all foreclosures. “The slope of that curve in recent months is much sharper than it was recently,” said Stan Humphries, chief economist for Zillow. Rising foreclosures among more-expensive homes could create added pressure for a housing market that has shown signs of stabilizing in recent months as sales of lower-priced homes pick up.
Foreclosures are rising in more expensive markets as home values in those areas fall, leaving more homeowners with mortgages that exceed the value of their properties. Prime loans accounted for 58% of foreclosure starts in the second quarter, up from 44% last year, according to the Mortgage Bankers Association. Subprime mortgages accounted for one-third of foreclosure starts, down from one-half last year.
The prime category includes so-called exotic mortgages that were increasingly used to buy more expensive homes, including interest-only mortgages that allowed borrowers to defer principal payments during an initial period. Borrowers often aren’t able to refinance out of these products because the drop in home values has left them with little equity in their homes.
Impact of “Shadow Inventory”
More unwanted supply of U.S. homes at the high end may also come from foreclosures. According to data from research firm First American CoreLogic, the rate at which wealthy homeowners are falling behind on their mortgage payments is increasing.
It says 9.4 percent of those with jumbo prime mortgages — those over $417,000 — are 90 days or more behind on their payments. This pales next to the 33.8 percent of subprime loans that are delinquent 90 days or more.
But the rate is rising. While the subprime delinquency rate is 1.3 times higher than a year ago, the jumbo prime delinquency rate is 2.6 times higher, suggesting that wealthy homeowners overstretched themselves financially much as their poorer counterparts did.
“Shadow inventory has become the industry buzzword over the past few weeks,” said Michael Lefevre, head of the National Association of Mortgage Professionals. “There is a lot of property out there that is yet to hit the market and could mean 2010 will be worse than 2009.” So the irony for wealthy homeowners is that the longer they wait the more they may have to cut their asking price. Realtors say sellers are awakening to the danger of a downward spiral.
Sources: Wall Street Journal, CNBC
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