As of late, this story of property riches to rags is becoming more common as foreclosure in the ultra-high-end segment of real estate have jumped by 61% since just last year. Also called the “super luxury” market, it’s defined by homes worth more than $5 million, owned by some of the wealthiest people in America. That adds up to unprecedented opportunities for buyers in the upper echelon of our real estate market, who see mansions and estates with price tags a fraction of what they’d expect to pay only a few years earlier.
That 61% increase in super luxury foreclosures comes at a time when overall foreclosures are way down – falling 23% in that same timeframe. So the high-end wave of defaults is occurring at the 11th hour, as almost every sector of real estate worked through most of their defaults and foreclosures since 2008’s market crash. But the luxury market always remained bulletproof in the past, with very few foreclosures up until now. As of 2010, foreclosures were still a middle class issue, with less than 1.5% of the 38 million foreclosures on properties with million dollar loans or more.
There’s a bigger story behind that 61% increase, however. Many owners of high-end foreclosures have been in default for a year or more before the bank takes action. Wealthy homeowners typically have the means to stay current on their mortgages but they also have far greater leverage when negotiating with the bank, that know it’s much harder to resell a luxury home if they took it back – and more costly.
Analysts also point to indications that the banks are healthier now as well as seeing rampant real estate appreciation, so they’re finally able to address the albatross of super luxury defaults and absorb those losses. They can add up much bigger than just a loss on the sale because these properties often have significant damage from vandalism and lengthy vacancies, high costs to hold and maintain the properties after the foreclosure process, and steep tax bills and sometimes lawsuits or liens.
While our Sacramento and Placer County have far less super-luxury, or even million dollar listings, the same ripples can be seen in the pond of our high end of our market. There is no better time for buyers who are looking to cash in on the wave of foreclosures, defaults, and short sales on the nicest homes money can buy. They’ll just need a lot less of it these days.