Los Angeles County has 2,205 Homes that are valued at $1 Million or More in Shadow Inventory. MLS Only Lists 32 Foreclosures with a Price Tag of $1 Million or Higher.
- 0 Comments
Million dollar home sales in the state continue to fall. In 2009 California saw 18,621 homes sell with a price tag of over $1 million. That is a far cry from 2005 when over 54,000 homes sold with a price of $1 million or more. But one thing that is rarely mentioned is this massive decline is due to the elimination of toxic maximum leverage mortgage products like option ARMs. The option ARM was billed as a mortgage that was for “higher income” borrowers that had erratic income and simply wanted the flexibility of stretching their dollar. Well apparently that hasn’t turned out well. I decided to run a report on Los Angeles County to get a sense of how healthy the million dollar market is. It is anything but healthy and this market has a large number of homes in what is now dubbed shadow inventory.
First, let us look at the MLS data:
Source: MLS
For Los Angeles County 3,349 homes are listed with a price of $1 million or more. Now for a county with 24,000 homes listed on the MLS, this is a large number. But again refer to the above data. Million dollar home sales are lagging. Why? Because the pool of million dollar buyers goes away when you require a down payment and actual income verification. Do we have wealthy families in the county? Absolutely! But the products that stretched the dollar to unprecedented proportions are gone. So this is what happened to sales statewide:
So the trend is definitely heading lower. As many of you know option ARMs and Alt-A loans are largely absent from the market (option ARMs are now banned in California). So if these home sales jump it will have to do with actual income verification and funding through jumbo loans. The million dollar market is interesting. Roughly 24 percent pay cash. That isn’t going to change. Yet that other 76 percent that actually have to get a loan is the game changer. And make no mistake, there is a large amount of distress in this market:
And here is where we see the massive discrepancy. 2,205 homes with estimated values of $1 million or more are in some stage of foreclosure; either bank owned, with a notice of default filed, or scheduled for auction. Yet the MLS only lists 32 homes with a $1 million price or higher as foreclosures! Banks don’t want to move on these places because if you think it is bad trying to move a $250,000 home in a tough market, try moving a $2 million or $5 million home. Ask Nicholas Cage if it is easy to sell a million dollar home in Southern California in this market.
And he isn’t alone:
“(WSJ) Big borrowers are more likely to default than ordinary people, according to data from First American CoreLogic. Its loan database, reflecting more than 80% of the overall home-loan market, includes 1,700 loans with balances of $4 million or more. About 14.8% of those loans were 90 days or more overdue at the end of January, compared with 8.7% for all home loans tracked by First American. Sam Khater, a senior economist at First American, said the bigger borrowers may be more prone to stop making payments when they have lost all their home equity.
Mr. Fuscone, Merrill Lynch’s one-time head of Latin America, put his mansion up for sale in November, asking $13.9 million. But he couldn’t find a buyer.”
Then you add into the mix L.A. County getting closer to bankruptcy and it is hard to see a market developing for these million dollar homes. Banks are going to have some major losses coming up. They can ignore and wait around but this won’t end pretty. Want to see an example?
This is for a 3 bedrooms and 3 baths home in Beverly Hills that Zillow estimates to be valued at $1.1 million even though it has $5.2 million in loans. Do the math and you will quickly find out that banks are simply deluding themselves at the moment with what they have on their balance sheet.
If you enjoyed this post click here to subscribe to a complete ad free feed.
Popularity: 15% [?]