According to Integrated Asset Services, LLC, increasing numbers of higher priced and luxury homes (homes priced $417,000 and up, considered jumbo loans) are heading towards foreclosure or short sale (when more is owned on the property than what it is currently worth).

In April of 2008, California had 102 jumbo loan properties become real estate owned bank properties (REO’s) compared to only 13 in April 2007. It’s also taking lenders a much longer time to reach a sales price agreement for the jumbo loans compared to smaller loans as more money is at stake and the carrying costs (taxes, insurance, security, maintenance and HOA fees) are much greater so lenders are less inclined to offer incentives to pick up those costs.

The San Diego luxury home market has been one of the hardest hit areas and has seen a noticeable increase this past year in short sales and foreclosures. Several properties with loans in excess of $1 million dollars may end up as foreclosures if lenders are unable to come up with pricing reflecting the current market realities in the area. They are sure to end up at the least a short sale. One recent transaction for a prime coastal property took two appraisals and four months before reaching a sales-price agreement. Foreclosure sale was put off twice during that time. The property had an original loan amount of $1.2 million and only sold for $880,000. It was quite a loss for the lender but the loss would have been even greater had the home foreclosed.

The ultra-luxury real estate market is also experiencing the effects of the housing downturn. Donald Trump’s Palm Beach estate offered in 2006 for $125 million, recently sold for only $100 million.

It is anticipated that there will be many more luxury short sales and REO’s before the real estate market recovers and many more areas outside of Southern California may be hard hit. This is good news though for luxury investors who can jump on the opportunity this presents. The Vail Valley has seen downturns before, but on the whole remains a popular market for second home and vacation home buyers particularly those from out of the U.S.

From the Luxury Home Digest