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For many financially challenged owners of a "McMansion," the theory of renting it out until the market comes back may not hold substance.
Consumers are still frozen under the weight of substantial debt as credit from financial institutions remains extremely tight, foreclosures and delinquencies are high, mortgage modifications have been a relative bust, wages are on the decline, jobs are being lost, taxes are poised to rise and too many houses still remain on the market.
It would appear that even after the significant correction in the housing market -- approximately a 30% decline from the peak -- house prices are still too high. Up until now the McMansions' mid-to-high-end homes in prime markets have not suffered like the subprime markets. So far, these homeowners who invested more than $1 million for their houses have been able to remain relatively immune until now.
However, in Southern California for example, inventories of low- and mid-priced homes have declined considerably. While this may be a good sign, the supply for $1+ million houses is still 13 months of inventory.
This would most likely translate into substantial reduction in the price of McMansions over the next several quarters. This could result in additional writedowns and losses for institutions such as (but not limited to) Citigroup (C), Bank of America (BAC), Wells Fargo (WFC) and holders of what was considered "A" securitized paper such as Goldman Sachs (GS) and AIG (AIG), etc.
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This article has 22 comments:
On Jul 02 03:39 PM whidbey wrote:
> There is a major shift in life styles in the making. The new life
> for Americans will be visible in autos, food, recreation and homes.
> It will also affect education and health care. In ten years we will
> wonder what happened. It is called the New Normal by some,or impoverishment.
> I think the President approves of egalitarianism and will wanted
> us all equals in economic terms.
lampoon.me
Multi-family Rental.
Walk the (formerly) gilded streets of Hartford's West End - Detroit, Kansas City, Tulsa. And any street named "Prospect".
Coming soon to an urban heat island near you.
Yeah, I know... The zoning department has not caught on yet.
But they will. A Crackhead is a terrible thing to waste.
Street parking, fire stairs and little bitty mailboxes. Better get used to the smell of Patchouli oil and hippies.
But maybe that is already happening in the US too....
On Jul 02 03:52 PM 3 degrees of seperation wrote:
> I have my eye on a just such a house in a prime area of Florida.
> Problem is that asking prices have not come down at all yet, in fact
> the sellers are still asking a premium over what they paid in 2007.
> I am ready with a cash offer when prices get discounted by 35% off
> of the peak, but don't know if we will ever get there in this area
> of Florida. It is frustrating to continually hear how much prices
> have come down, yet it is not happening where I want to buy. I should
> note that nothing is selling at the current asking prices, but that
> doesn't appear to be influencing sellers to do an discounting. Many
> of the homes in this development are unfurnished and never lived
> in, so I know speculators bought a good number of these homes.
Of course there are those who just like living in the lap of luxury. You could say that these people bought a house for the right reason: as a lifestyle decision and not as an investment.
On Jul 02 03:52 PM 3 degrees of seperation wrote:
> I have my eye on a just such a house in a prime area of Florida.
> Problem is that asking prices have not come down at all yet, in fact
> the sellers are still asking a premium over what they paid in 2007.
> I am ready with a cash offer when prices get discounted by 35% off
> of the peak, but don't know if we will ever get there in this area
> of Florida. It is frustrating to continually hear how much prices
> have come down, yet it is not happening where I want to buy. I should
> note that nothing is selling at the current asking prices, but that
> doesn't appear to be influencing sellers to do an discounting. Many
> of the homes in this development are unfurnished and never lived
> in, so I know speculators bought a good number of these homes.
In the 1930s, as my father told me, unsellable luxury brownstones were carved up into tiny apartments to satisfy realistic housing needs during the depression. I have long been waiting for the same to happen to houses which are too costly for most single families to maintain (wait until the additional power and heating costs after cap and trade hit home Most of these homes were built with 1 at most 2 zones of heating)
On Jul 02 04:36 PM Clarence the Dog wrote:
> Our grandparents had a solution for this...
> Multi-family Rental.
> Walk the (formerly) gilded streets of Hartford's West End - Detroit,
> Kansas City, Tulsa. And any street named "Prospect".
> Coming soon to an urban heat island near you.
>
> Yeah, I know... The zoning department has not caught on yet.
> But they will. A Crackhead is a terrible thing to waste.
> Street parking, fire stairs and little bitty mailboxes. Better get
> used to the smell of Patchouli oil and hippies.
these extraordinarily large, and expensive, homes will inevitably drop in value sir - just like your existing home, but proportionally perhaps a little more.
On Jul 02 03:52 PM 3 degrees of seperation wrote:
> I have my eye on a just such a house in a prime area of Florida.
> Problem is that asking prices have not come down at all yet, in fact
> the sellers are still asking a premium over what they paid in 2007.
> I am ready with a cash offer when prices get discounted by 35% off
> of the peak, but don't know if we will ever get there in this area
> of Florida. It is frustrating to continually hear how much prices
> have come down, yet it is not happening where I want to buy. I should
> note that nothing is selling at the current asking prices, but that
> doesn't appear to be influencing sellers to do an discounting. Many
> of the homes in this development are unfurnished and never lived
> in, so I know speculators bought a good number of these homes.
On Jul 02 03:52 PM 3 degrees of seperation wrote:
> I have my eye on a just such a house in a prime area of Florida.
> Problem is that asking prices have not come down at all yet, in fact
> the sellers are still asking a premium over what they paid in 2007.
> I am ready with a cash offer when prices get discounted by 35% off
> of the peak, but don't know if we will ever get there in this area
> of Florida. It is frustrating to continually hear how much prices
> have come down, yet it is not happening where I want to buy. I should
> note that nothing is selling at the current asking prices, but that
> doesn't appear to be influencing sellers to do an discounting. Many
> of the homes in this development are unfurnished and never lived
> in, so I know speculators bought a good number of these homes.
- Historically dirt cheap interest rates
- Inflation fears in the future
Yet prices still keep coming down. You'd think that maybe they were grossly overprices, and that everybody calling a housing bottom lost their shirt already.
The thing that is still ringing through my ears is the relators saying " You better buy now before you get priced out of the market". They were basically telling people Yes, prices are high and you can't afford this house ( I know it and you know it), but you better buy the place you can't afford now because when prices keep going up as the they always do (hahaa) that you REALLY won't be able to buy a place.
Consumption for consumptions sake (growth) is madness, but so is making everyone equal on economic terms. Equal opportunity YES, equal outcomes no matter the effort-- a disaster in the making.
Increasing efficiency, productivity, and use of materials is the "green" mantra that will pay off in the long term...because it is simply good business and a sign of thoughtful management.
On Jul 02 03:39 PM whidbey wrote:
> There is a major shift in life styles in the making. The new life
> for Americans will be visible in autos, food, recreation and homes.
> It will also affect education and health care. In ten years we will
> wonder what happened. It is called the New Normal by some,or impoverishment.
> I think the President approves of egalitarianism and will wanted
> us all equals in economic terms.
Remember, Obama raised more money than any candidate in the history of the world.
That's why it's ironic when people imply that he's a socialist, when in reality, he's a greater capitalist than most of us.
All of his policies saved or benefits big business.
Yes, his rhetoric may sound populist or socialistic at times, but don't be fooled: this man is a capitalist through and through, and likely owns more stock than you do.
Eric, do you have a credible citation for this statement? I could use it in my high-end short sale business when negotiating with banks. Thanks.
See the stories about new construction homes being bulldozed in California.
You are correct . Here in North metro atlanta , Mcmansions on 5 acres are vacant , + have been sitting on the market for 3 years . Many of these folks bought or built these homes 2005-2007 timeframe . Their prices reflect they are trying to come out ' unscathed ' Boy , are they in for a rude awakening . Many , Many mcmansions here for sale in North Atlanta . Who ? in their right mind would want to heat / cool these things ? Neighbors here years ago , told me ' their homes were cold . Cap + trade will be the icing on the cake . I was told 1999 " I was crazy " when a built a nice , but not huge custom ranch . I was told " people want large homes ".Solar panel going on large long roof line soon . Who's laughing now ?