Luxury Homes – Foreclosures on the rise

The amount of luxury homes in foreclosure is still rising sharply, and many of these are substantial developments, let alone the private foreclosures. The recent spate of foreclosures in the lower and middle segments of the real estate market is spreading inexorably through the high end now. These are a few recent ones, showing the depth of the problem, and the fact that this is a world-wide issue. It is difficult to predict the bottom of the problem, but one thing is clear – the luxury sector is by no means immune.

As many as 50% of sales across all markets recently has been a distressed sale of some kind, and the glut of luxury developments still coming onto the market suggests things may get worse before they get better. The amount of bank owned properties is quite staggering currently, and I understand the big four US banks are now the biggest property owners in the country, which is an unsustainable situation, whatever the politics of bailing them out when they become “too big to fail,” may dictate.

The Statesmen reports that a luxury home development on Lake Travis has just been foreclosed upon after the developer defaulted on a $20.4 million loan. This is the second major foreclosure in Central Texas this month. Lake Travis foreclosure

Lake Travis, the site of a proposed $120 million luxury home development now in foreclosure

Hawaii luxury condos are struggling as foreclosures rise and swine flu fears caused visitor number to drop significantly last month, Las Vegas luxury condos are selling at 78% discounts off peak prices, and Reuters has a pessimistic view that many suburban developers have reached critical mass and must face the difficult decision to sell at a discount or go  bust. “at the market’s peak the “McMansions” — huge homes on small lots that typified the excesses of the boom — in this half-built development sold for up to $1.3 million. The peak national U.S. average home price hit $230,300 in July 2006.” Reuters

The development they discuss as an example is not dis-similar to many around the country, if not the world, Hannaford farm in a Chicago suburb where empty lots were selling for $205,000 at the peak of the market and are now fetching around $66,000. The size of the issue is still not clear, although the developer in this case is of the opinion that the inventory of “developable,” lots that will be coming on the market dwarfs the inventory of existing homes. If that is the case, this is a far larger problem than anyone is admitting to. The mortgage refinancing markets are still all-but frozen, and after three years of downward prices, this could be the straw that breaks the camel’s back. Once again, no one is really admitting to the scale of commercial foreclosures likely to happen over this year and the next.