Million-dollar bargain homes
In hard-hit luxury markets, huge discounts are making megamansions more accessible.
By Francesca Levy of Forbes
This 7,500-square-foot, five-bedroom house in Crested Butte, Colo., has been on the market for two years and is selling for $4,950,000. The original price was $7,595,000. // © Forbes
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Got a couple million dollars burning a hole in your pocket? Good news: Prices have been slashed on ultrahigh-end homes. That gilded manor with an ocean view and horse stable is more affordable than ever.
But there's a catch: The high-end homes with the biggest price cuts are for sale in the lousiest markets. Cities where prices soared to unprecedented levels and then plunged just as precipitously are now saddled with clearance-priced mansions that few can afford, even at a discount.
The same is true in luxury markets that are known for their steep housing costs, which suffered disproportionately when demand plunged. So while you might be able to score a multimillion-dollar dream home at a steep markdown, it's not likely to appreciate in value any time soon.
It's well-known that the national real-estate market is in trouble, but that reality is even sharper at the high end, where even those in a position to buy may find borrowing impossible. Financing a million-dollar home typically requires a high-interest jumbo loan, a mortgage not backed by the federal government, so lenders are reluctant to issue them without a hefty down payment and impeccable credit. And even when buyers have both, there's no guarantee they'll land a loan.
'Credit was always a constant. Now it's a wild card,' says Jonathan Miller, president of Miller Samuel, a Manhattan-based real-estate appraisal company. 'Banks are changing their requirements midapplication; you're never sure if you are going to close, even if you meet all the terms, and that's a problem.'
To find some of America's multimillion-dollar bargain homes, we enlisted Realtor.com to scour the listings for homes that were priced higher than $1 million, but that had seen dramatic price cuts.
We found these high-end deals to be concentrated in two types of cities. 'Bubble markets' such as Los Angeles, Las Vegas, Orlando, Fla., and Atlanta exemplify real estate's euphoric rise and subsequent fall. Struggling luxury markets such as resort town Crested Butte, Colo., and New York suburb Alpine, N.J., are places where expensive homes — and jumbo financing — are local real-estate agents’ bread and butter.
Singer Britney Spears' Beverly Hills, Calif., home hasn't garnered any interest, either; its asking price went from $7.2 million in March 2009 to $4.86 million in just a few months. Drew Mandile, the broker who is handling the sale for Brooke Knapp Group, says that while new construction in luxury neighborhoods such as Bel Air and Beverly Hills makes the market look alive, it's an illusion.
'It's like being in real-estate fantasy land. The money investments appear to be endless,' Mandile says. 'Yet we know there are no construction loans or mortgage money for these projects — and we also know that, with a few exceptions, these are almost all owner-users.'
In Atlanta, developers once sought to capitalize on rising home prices with scores of new luxury condominiums. But after subprime loans began collapsing and local unemployment began to rise — it's now at 9.8% — the city was left with a glut of empty apartments. One new condo went on the market for $3.5 million in August 2009 but has since been cut down to $2.5 million.
'The market for condos has taken quite a beating in Atlanta,' says Beverly Mason, a broker with Harry Norman Realtors. 'Only a few penthouses have sold in the last year in this price range.' She says she expects downsizing luxury homeowners or foreign investors to be most interested.
Struggles at the top
In tony Alpine, N.J., homes costing upward of $2 million are the norm. But these luxury properties, which were once the province of wealthy financial-services workers, have dropped in price significantly — such as a seven-bedroom Colonial that went from $8.8 million in September 2009 to $6.9 million.
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