Local high-end home sales in deep slump

August 28, 2009

Larry Rasmussen is a veteran real estate agent who has built his practice selling homes in the toniest neighborhoods of Carmel and Zionsville.

But a brutal housing market that has been particularly unkind to wealthy sellers is forcing Rasmussen to compensate by listing more modest-priced homes.

“It’s not something I would normally do,” said the broker/owner of Century 21 Rasmussen Co. Inc. in Carmel. “But it’s something I learned to go back to.”

He’s not alone. Sales of higher-priced homes nationally have slowed to a glacial pace. In the Indianapolis area, the supply of homes for sale above $1 million has risen from three year’s worth in 2007 to more than eight year’s worth, according to the Metropolitan Indianapolis Board of Realtors.

By contrast, the supply of all homes for sale in the region during the same time frame actually dipped slightly, from 9.3 months to 8.9 months.

The high-end market is just a tiny sliver of the overall housing market, representing less than 1 percent of all homes, analysts say. The average listing price for million-dollar-plus homes now on the market in the Indianapolis area is $1.75 million.

The average time a high-end home stays on the market has risen from 115 days in 2007 to 176 days during the first six months of this year, according to statistics compiled by F.C. Tucker Co. And through the first six months of this year, only 18 homes priced at more than $1 million have sold in the nine-county area, compared with 39 during the same time frame two years ago.
The glut of lavish homes on the market is leading some sellers to slash prices in hopes of attracting a buyer. Shelly Walters, an agent at Keller Williams’ metro north office, lists a home in the exclusive Oak Brook neighborhood in Carmel for $850,000. The price of the 8,200-square-foot house, on the market for two years, started at more than $1 million.

Another one of her homes, in Noblesville, lists for $1.1 million. The five-acre property features a 2,500-square-foot carriage house and 1,200-square-foot tree house, as well as an indoor basketball court. It’s been on the market since February 2007 and has drawn just one showing.

“In any other year, people would be clamoring to get into these neighborhoods,” Walters lamented.

So what’s the problem? One contributing factor is that financing for higher-price loans, known as jumbo loans, is harder to get. Banks often want 30 percent down and six months of mortgage payments in reserve.

Loans up to $417,000 are considered “conforming” and can be sold to mortgage-finance giants Fannie Mae and Freddie Mac, which also guarantee them when they resell the mortgages to investors.

Loans between $417,000 and $729,750 are “conforming jumbo” and loans above $729,750 are “super-jumbo.” Fannie and Freddie back only conforming jumbos.
Lenders are leery of making loans above the amount the two will guarantee, because if a jumbo loan borrower defaults, it’s harder for a bank to quickly sell a more expensive foreclosed property.

Making matters worse, the secondary market for super-jumbo loans once occupied by the likes of investment brokerages AIG and Bear Stearns has shriveled, causing interest rates to rise.

Rates for a 30-year jumbo mortgage are running between 6.5 percent and 7.5 percent, compared with the 5.12 percent to 5.35 percent interest rate conventional 30-year mortgages currently demand.

The steeper rates are contributing to the inactivity, and are hurting not only real estate agents but mortgage brokers as well.

Bill Clouse, president of Indianapolis-based W.R. Clouse & Associates Mortgage Co., has made a living brokering jumbo loans for homes on the north side of the city, and in Hamilton and Boone counties.

The dearth in activity has depreciated the value of his average loan from $325,000 to $265,000, he said.

“It’s bone dry,” he said of the jumbo loan market. “I have to do an awful lot more units than I had to do in the past.”

Karen French, a real estate agent at F.C. Tucker Co. Inc., attributed the sagging market to a lack of consumer confidence.

The population that can afford higher-end homes has either lost money in the stock market, or in the value of their own homes, and are choosing to stay put, she said.

“Our sellers can’t believe their houses are not worth what they were two years ago,” she said. “We’re having a hard time telling them only the very best-conditioned and well-priced house has a chance to sell.”

Even then, that may not be convincing enough. French typically might sell four or five million-dollar homes in a given year, but this year has yet to collect a commission on a single one, despite listing several. The highest-priced home she sold this year fetched $645,000.

For more on this topic and photos of high-end homes, check out the latest At Home Quarterly.


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