Princeton, NJ Real Estate Articles

Inflation Outlook - Housing Market Activity & The Luxury Market

January 22, 2011 By Kevin R. Kenyon

Inflation Outlook:

For some period of time a lack of demand for buying nearly everything has kept prices, for many things, low here in the US.

However, thus far in 2011, the US debt markets have begun to signal that inflation, which is racing ahead in far off places like China and Brazil, may be coming back soon here in the US.

This concern has caused the 10-year and 30-year US Treasury bonds to trade at their highest yields in the last year or two.  And as the government bond yields move higher, riskier credit markets, like the market for mortgages, are seeing higher rates as well.

How can all of this be happening if the Federal Reserve and the US Treasury are conspiring and actually buying tons of credit assets (bonds) to try to force rates lower?

Maybe the market has decided that a country swamped in debt, issuing more debt and printing currency to address problems stemming from too much borrowing, is just plain silly.  There is a school of thought that the cure Washington is administering may indeed have a ricochet effect, and is pushing up rates faster than with no intervention at all.

 
 
Housing Market Activity:

 
 
The numbers are in for December 2010 for home sales.  They are remarkable in many respects.  Month over month and year over year results improved dramatically, with unit growth of 10%+ in both comparisons.  Remember the tax credit incentive was not available for closings in December, so the "market" had no tax incentive stimulus to cause an increase in activity.  However, 36% of unit volume was for homes that had been foreclosed on or were short sales.  More than a third of all sellers were institutional sellers.  That is a first, and is amazing.  The item that was buried in the housing report that was the biggest nugget of information was that home prices were down (again.)

 
 
So, looking at the results, if a property was "marked down" to the correct value, it sold, and sold briskly.  The "adjustment" to these lower prices is now very real when you realize prices are going down,  it's nice to know volume is (finally) going up.  Institutions that own homes are indeed dumping them and best of all buyers are buying them with no tax incentive at higher rates of interest.

 
 
The Luxury Market:

 
 
We have lots of really attractive rates for luxury homes.  The so-called "spread" between Fannie Mae rates and jumbo rates, is the narrowest it's been in years.  We priced a 5/1 ARM for several million dollars in the high 3%'s recently.

 
 
Why then is there a 5 -15 year supply of luxury homes in most markets when financing is readily available?

 
 
We think wealthy folks have had more "staying power" to remain in their homes, and have hoped that values would recover or go up at some point.

 
 
Unfortunately, many luxury homes are now worth 30% - 40% less than their high-water valuations in late 2006, or early 2007, and have not been selling at all.  Sellers in this market segment have simply not wanted to mark their real estate down to the market.

In an effort to help our more affluent clients and advisors, we recently formed a relationship with Concierge Auctions (CA).  They are a luxury home auction company active in nearly every state.  We encourage you to look at their website, www.conciergeauctions.com .  If you or a client have a luxury home, and don't feel like waiting 5 -15 years to sell it, we think the CA model is compelling.  We are working with them to provide financing to the winning bidder at their auction in Princeton, NJ, on February 17, 2011, featuring an exquisite home originally listed for 4.2 million dollars that will be sold at absolute auction.
 
Want to learn more?

 
Please drop us a line.

 
 
Kevin

 
 
Kevin R. Kenyon

Branch Manager

NMLS #8677

Gateway Funding Diversified Mortgage Services, LP

D/B/A Arlington Capital Mortgage

33 Witherspoon Street

Princeton, NJ 08542

kkenyon@arlingtoncapital.com

Direct 609.945.7513

E-Fax 215.793.8201

Licensing information at www.gateway-funding.com

Company NMLS #1071