Rich Default on Luxury Homes Like Subprime Victims (Update1)

In the old days(early 90's) Jumbo loans were issued at lower LTV'S for just this reason..

riversider, I think the guy put down 25%. lost his income. made $500k for a $950k-ish home. very prime, by any standards, except perhaps appraisal.

it's when the nice properties become REOs when prices really adjust. that's gonna be great for those on the sidelines. subprime shacks in REO don't bring prices down as much (imho).

The problem with owning the 5 million dollar home is there will always be a limited number of buyers. During the boom years, this is easy to forget. Also back in the day 75% was aggressive lending on the million dollar homes 50-60% LTV was more normal.

"The problem with owning the 5 million dollar home is there will always be a limited number of buyers. "

very true, but still in desirable locations 5 million would just give you quite a regular home! think manhattan for example. it's not a palace by any stretch of the imagination.

Manhattan where the great deleveraging of real estate has just begun. Remove Alt A buyers, Buyers who only got in with 10-20% down, buyers who were banking on Home Price Appreciation, buyers who planned on selling in under 5 years, buyers who never would've purchased based on 30 year level pay mortgage and suddenly the demand side of the equation is a lot smaller. Add to that less Wall Street bonuses and income uncertainty.... DISASTER

but riversider, if you're comparing apples to apples there weren't nearly as many people making $500k, nor were there nearly as many homes at $1m. You'd have to adjust the home regionally for inflation at least, and look at it from a income/purchase ratio as well.

Not that I don't think underwriting standards fell off a cliff, mind you. I just don't think this was necessarily a bad loan (of course proof is in the pudding, and all that).

then add to that already long list those that bought really cheap during the 90s and want to downsize or want to secure that home equity for retirement before it disappears.

i actually did hear old people (family dinners) talking about their home equity as "their nest egg", wow, those were signs of the times now.

This is purely shooting from the hip. But I suspect 50% retrenchment from the levels of where real estate was at the previous trough. On Riverside Blvd units were priced starting @ $400+ per square foot in 1999 with river view.

i'm not ready to shoot a target price from anywhere. but prices at the bottom will end up being very different if we have (as i expect) a W shaped big recession. i don't buy these "green shoots". my point is that homebuyers confidence in future disposable income (key to make consumption decisions on discretionary durables) is gonna get crushed once those green shoots become really dark ones.

Good point admin, but comparisons to the other asset clases and other regions can be made. Plus it would be interesting to know how prices performed in the mid 80's, early 70's, 1930's, etc

admin, I'm going with the big fat W myself. also, there is just a huge shift in risk/benefit calculations toward buying that most illiquid of assets.

The big W.. It's MAD MAD MAD MAD WORLD.. I just had to...

"how prices performed in the mid 80's, early 70's, 1930's, etc"

to find a comparison that's relevant you should only take into account those recessions that are driven by a crash on a credit bubble. that will give more hints towards what happens to assets that are credit defendant in terms of supply, demand and price... so for that (given that mtgs were so different in the 30s than now) you are better off using credit crashes from abroad (japan, argentina if you want...). bottom line, there's no easy comparison.

we are in new territory! what's different with previous RE bubbles within USA (the other source of relevant comparisons) is that lending used to be local before the S&L, hence "all RE is local" is an anachronism. now it's not only at the national level but hits many countries at the same time. and that's what's different with japan, they got in trouble alone, the rest were not in recession so they used their export machinery. that's not an option now when the whole world is in big shit.

admin, this time it IS different.

Florida in the 1920's experienced a huge speculative bubble. Just like now. VIADUCT. WHY-A-NO-CHICKEN

Just like now. Except it was just Florida. I don't get the why-a-no-chicken...share.

about ready. It's from a Marx Brothers movie(coconuts) about Florida real estate speculation...

got it. thanks.

i know. real estate shufflers at some point claimed that florida was going to receive every single household in USA on a mobile home. amazing how stupid humans can get.

Not a good sob-story. Between refinancing and the two other mortgages he's probably recouped most of his 25%.