No, I don't know what these people earn.
But I can tell you where the money is coming from, what the risks are and why change is an inevitable but frequently ignored factor in home buying.
High-end home buyers generally have several sources of money, if they are not making a gazillion dollars to start with.
Inheritance: These buyers often don't come from what we'd think of as moneyed families. They simply have inherited a family property that was paid for - maybe their parents' modest $100,000 ranch-style home -- and they use the proceeds to purchase their next home.
Savvy home investors: These are the folks who regard one home as a means to the next. They get in on the ground floor of a subdivision and once it's built out and the prices have risen, they sell and move on to the next. Perhaps they even build the home themselves. Their goal is to own their home outright and they will move every few years to achieve this.
Leveraged buyers: They use their investments and earnings to qualify for either the low-interest fixed rate loans or the riskier adjustable rate mortgages in order to buy the house of their dreams. The idea is to keep their money in investments where the rate of return is higher than the mortgage interest rate. They don't put much money down.
Here's how it works: If the stock market is paying 10% interest on investments, and the mortgage interest rate is only 5.5% then leave your money in the investment with the higher rate.
Meanwhile, put 10% down on the house. Get a first mortgage of 80% and a second mortgage of 10%.
Leverage buyers in many respects are what has happened to real estate market throughout the nation. These are not the subprime buyers, although they have one thing in common with them: little to none of their own money in the home.
Change is what happens in life: A spouse dies; a spouse leaves. You get laid off. You get transferred. A new baby arrives. An old baby goes to college. And you want to sell your home. If you don't have any of your own money in it (also called equity), then you have to hope that the house appreciated enough that you can pay your costs of getting out of it.
When the interest rate stayed around 5%, everyone and their brother encouraged everyone and their brother to buy as much house as they could possibly buy. "We'll never see the interest rate that low again," they said.
A true statement. Some buyers were poorly advised by their lenders; some were just poorly advised, chasing homes beyond their means.
So here we are and life has changed. The national market has flattened out, in some areas with zero to negative appreciation. It has spread with the cascading effects of too many houses on the market and too few buyers who can get a loan from the skittish mortgage lenders.
Homeowners living paycheck to paycheck have no money in the house and no money in reserve to pay for everything involved in selling the house.
Other owners owe so much on the house - either because of their first and second mortgages or the home equity line of credit - that they find it painful to part with cash in other investments to get out of the house. Sorry, but typically you can only enjoy the equity line or zero down once. (You can only milk the cow once ... You can't have your cake and eat it too).
And for the people who bought those huge houses, I would advise you to look ahead. Right now The Fed has helped with interest rates. But what if the rate goes up to 9%? How many people will be able to afford your $750,000 home? And what happens as our population ages and people typically downsize?
Things change. Try to be ready.
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