If that is the case, you can see the trillions we are borrowing, printing, and then spending to "save" the housing market, is probably reducing the carnage by a factor of 50% - kicking the can in most cases. If you believe in the free market, this will mean the pain in the luxury market will be more immense now (pulling the band aid off fast) - but the true rebound, without need for constant government intervention - will happen sooner in this price range. Hence, in my estimate - in about 3 years the brush will have been burnt, and the forest will be able to reseed in that price range. Of course this $1m+ mortgage market is just a tiny sliver of the overall US housing market....
Meanwhile there is a park ranger stationed near almost every tree to make sure no embers hit the "FHA market" - which of course is an expensive venture but whatever the cost it takes to stop reality from happening - it is worth it. What the "reality" of the sector is, in the FHA range of mortgage limits - is completely unknown. So many 'visible' hands manipulating so many levers, who can tell what is going on - we can just know that it shall remain extremely reliant on government assistance, and market clearing prices where true buyers meet true sellers might never again be seen in the U.S.
Via Bloomberg:
- Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate and some are turning to so-called short sales to unload properties as stock-market losses and pay cuts squeeze wealthy borrowers.
- Payments on about 12 percent of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages, according to data from First American CoreLogic Inc. The rate for mortgages above $1 million was 4.7 percent a year earlier. (that's an incredible year over year jump)
- The rich aren’t as rich as they used to be,” said Alex Rodriguez, a Miami real estate agent with JM Group USA Inc., whose listings include a $2.9 million property marketed as a short sale because the price is less than the mortgage, leaving the bank with a loss. “People have reached the point where they can’t afford the carrying expenses of a $2 million home.”
- “It’s not uncommon to see this situation on the high end of the market -- homes selling for less than it would cost to build them,” said Holzknecht’s agent, Joe Flick of Roanoke Group in Seattle.
- Short sales almost tripled to 40,000 in the first six months of 2009 from the same period a year earlier, according to data from the Office of Thrift Supervision. The bank regulator doesn’t break out short sales by size of mortgage.
- “You are just starting to see the tip of the iceberg with luxury short sales,” said Adrian Heyman, owner of Property Advisors, a real estate broker in Scottsdale, Arizona. “A lot of wealthy people are upside down in their mortgages and they just can’t afford the second or third vacation home anymore.”
- The entry-level segment of the housing market was aided this year by an $8,000 first-time buyers tax credit that pushed resales to a 6.1 million annual pace in October, the highest since February 2007, the National Association of Realtors said in a Nov. 23 report. The new version keeps the first-time buyer benefit and makes a smaller credit available to some move- up buyers. It can’t be used for homes priced above $800,000.
- The Federal Reserve set out in January to lower fixed mortgage rates by purchasing $1.25 trillion of bonds backed by home loans. The 30-year fixed rate for so-called conforming loans that can be bought by Fannie Mae and Freddie Mac dropped to an all-time low of 4.71 percent in the week ended Dec. 4.
- “The reason the low end stopped falling is because the government stepped in with affordable loans,” said Scott Simon, managing director at Pacific Investment Management Co., a Newport Beach-based investment firm that runs the world’s largest bond fund. “There is no political will to bail out a million-dollar house.”
- The Fed purchases haven’t affected the high end of the market because they exclude so-called jumbo loans. Mortgages above the $729,750 limit set by Congress for the nation’s highest-priced markets cost almost 1 percentage point more than conforming loans. That’s quadruple the historic spread.
Last I checked, that didn't work out too well, but certainly if you see a massive mistake, the best way to battle it is to