The Lagging Luxury Housing Market?

October 1, 2009

by Scott Sambucci


Got this week’s Structured Finance newsletter from Standard & Poor’s today.  One of their updates was the “U.S. Prime Jumbo RMBS Performance Update: August 2009” which reads in part:

U.S. Prime Jumbo RMBS Performance Update: August 2009 Distribution Date
Publication date: 24-Sep-200U.S. Prime Jumbo RMBS Performance Update: August 2009 Distribution Date (Publication date: 24-Sep-2009)

Total delinquencies have continued to increase among U.S. prime jumbo residential mortgage-backed securities (RMBS) transactions originally rated in 2005, 2006, and 2007. As of the August 2009 distribution date, total delinquencies were 9.16%, 13.14%, and 12.67% of the current aggregate pool balances for the 2005, 2006, and 2007 vintages, respectively. These figures have increased approximately 3.97% for the 2005 vintage, 5.71% for 2006, and 4.62% for 2007 since the July 2009 distribution date.

REOs and foreclosures have been on the rise this year, and we noted back in July that there was clearly a slow down in the non-conforming mortgage market price segment.  Using our Altos-20 National Housing Market composite that tracks the S&P/Case-Shiller markets, our July article discussed how a clear price ceiling emerged this year – the homes exiting the market were clearly under the $729k conforming loan limit set by Fannie Mae and Freddie Mac.

Lower price segments in the housing market showed strength this Spring as indicated by positive movement in the Case-Shiller Index for May, June, and July.  Diving deeper into a couple of the more notable “luxury” markets reveals

that the more expensive markets that initially resisted the housing downturn are feeling the effects this Fall.

Phoenix vs. Scottsdale

Phoenix Housing Prices

Scottsdale Housing Prices

Examining both the Price of New Listings and the Median List Prices in these markets, there’s a clear lag evident between the two markets – Phoenix (showing signs of recovery) and Scottsdale (more recently getting into the muck):

  • Scottsdale’s Median Price remained relatively stable from mid-2007 through early 2009 while Phoenix moved consistently lower every week during this same period.
  • Phoenix’s 50% price drop from their peak spurred the increased transaction activity this year and prices have remained stable throughout 2009.
  • A look at the Price of New Listings reveals that sellers in Phoenix are finding the market’s equilibrium price level while sellers in Scottsdale continue to enter the market at lower and lower levels.

Dallas vs. Highland Park

Dallas Housing Prices

75205 - Highlands Housing Prices

The Dallas housing market showed remarkable resiliency throughout the housing crash.  Prices has consistent risen since mid-2007.  I did find some interesting data when diving into Highland Park (zip code 75205) just north of the Dallas downtown area:

  • In Dallas, new sellers are entering the market at slightly lower levels from their peak of approximately $240,000 in late Spring, down about 20% from these highs.
  • There’s some clear seasonality looking at the Price of New Listings in Highland Park – new homes entering the market have down so at lower prices later in the year.  However, this year’s new listings are about 10% lower (around $1.15 mln) that new listing prices in Fall 2007 and Fall 2008 ($1.25 mln) and down 25% from their $1.55 mln peak in early 2009.

Los Angeles vs. Beverly Hills

Los Angeles Housing Prices

Beverly Hills Housing Prices

So what are the rich & famous doing out there?

  • Los Angeles looks very similar trend-wise as Phoenix – consistent price declines in 2007-2008 until transactions picked up in early 2009 that have stabilized housing prices since early 2009.
  • Beverly Hills appears to be right at the same place as last year – declining list prices and lower prices of new listings, but price levels haven’t dropped below their lows from October 2008.
  • The price points in Beverly Hills are considerably higher, so it’ll be interesting to see if lag effect in this market is even more severe from what other lower-priced luxury markets are feeling.

Our friends over at the Institute of Luxury Home Market track the luxury markets across the country (with help from Altos Research data of course!).  Check out their US Luxury Housing Market Report here.

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