Pressure on Higher Priced Homes

The San Diego Union (June 20) confirms what I wrote last week – that higher priced home prices are now being thrashed by short-sales and foreclosures. (http://www3.signonsandiego.com/stories/2009/jun/20/pricey-neighborhoods-seeing-more-defaults/?uniontrib)

“But in certain expensive areas, there were record levels of defaults.

Point Loma, Solana Beach and Rancho Santa Fe and other expensive areas reported numbers several times the level seen a year ago, a sign that the trend may continue upward.”

That is certainly our problem. I am working with two high-priced homes ($1,395,000 and $2,900,000) and the values of those homes – already diminished because of the general market – are now further depressed by the $540,000 sale of the luxury home on Mountain Meadow (that was $1,000,000+), and the $775,000 home on Cerveza Baja (that was previously $1,400,000.)

Now it can be argued that the market is simply reflecting a rational delta between the lower, middle and upper priced home markets, and that is true but it does not help high-priced homes, it simply spreads the pain still further. Spreading the pain to the wealthy does not diminish the pain for the less wealthy.

Continues the SD Union, “I think we will see more pain and more foreclosures in the upper end,” said San Diego real estate broker Gary Kent. “Some neighborhoods like La Jolla and Del Mar were almost unaffected by foreclosures, but now there will be some effect.”

This simply reflects the reality of the general economy. Many of the middle and upper-middle homeowners are managers and owners of businesses that are in serious difficulty as the economy slows. If the owner/manager cannot save their business, they can’t save their homes.

If there is a silver lining on this dark cloud, it is that it will generate sales in the mid and upper ranges – and that will RAISE the median prices. Raising median prices increases Buyer confidence in the housing market. Yes, that is a psychological and not an actual benefit, but confidence drives the market.

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