Luxury Home Sales May Soon be Bargains for Those with Cash

Posted September 29, 2007

      The subprime mortgage crisis is beginning to have a effect on an unexpected sector of the real estate market - luxury homes and condominiums.

    To some extent, the drop in high-priced home sales can be traced to the trouble in the sub-prime mortgage sector, but it also due to the fact that fewer investors are willing to buy packages of jumbo mortgages.  In the past, banks catering to the high-end real estate market were able to limit their exposure to defaults by packaging up lots of "jumbo" mortgage loans (those above the limit set by Fannie Mae, Freddie Mac and Ginnie Mae) into portfolios and selling them to investors.  Such investors are now hard to find.

    Banks and mortgage companies that write such jumbo loans are now having to keep those loans on their own books and they're not happy about that.  To compensate themselves for accepting this extra risk, they are now charging much higher interest rates on the "jumbo" loans normally written for luxury home and condo sales.  Some jumbo mortgages are incurring interest rates of an extra 3% or more over the interest rates charged just a few months ago.  And that is depressing the sale of luxury homes and condos everywhere.

    The problem is particularly troublesome in areas such as the Florida real estate market where there is a large inventory of homes and condos in the $500,000 - $1 million and above price range for sale.

    Eventually, luxury home and condos owners who need to or just want to sell their luxury real estate will have to start reducing their asking prices substantially if they want to see a "SOLD" sign in their future.  As a result, those with cash on hand may soon be able to purchase a Florida luxury home or condo at a really attractive price.