Luxury condo prices take a hit

Nitpick:

"It’s pretty clear the housing downturn, even as it appears to be hitting bottom [...]"

What are you seeing that looks like we've reached a bottom?

Scott: "We all knew this was coming, the question was when." Well said...

Prices are also now plunging in the W towns, which is not surprising. Looks like Hung Wang was right... No market is "bulletproof".The same mania and reckless lending that drove the bubble at the low end of the market was also at work in the upper end of the market. The only difference is that people in the upper end of the market had more staying power, which is why prices held up as long as they have.

Mr. Sunshine?

Makes sense. Prices over the last couple of years have plunged at the lower end reflecting implosion of the sub prime market. With Prime, Alt A, and Option Arms starting to reset (peak resets don't occur until 2010 to 2011), along with the continuing deterioration of the economy, we are seeing the mid and upper end of the market cracking.

I suspect that one thing that's beginning to put price pressure on the "high end" towns and neighborhoods is the stark difference in price between them and some of the "less desirable" parts of the Boston metro area. In 2005 it was expensive no matter where you wanted to buy. Now, 4 years later, the price differential has widened substantially, and it doesn't make nearly as much sense that an old fixer-upper in Medford, Malden, Winthrop or Revere costs 1/3 - 1/2 as much as a similar place in gentrified Jamaica Plain or Southie. Throw a couple of coffee shops and organic food stores into the former, and it starts to look a lot like the latter, except at a big discount.

John: "Prime, Alt A, and Option Arms starting to reset "

Will these be resetting up or down? We have a 10-1 year arm that resets in 6 years. We're refinancing now, so it is a moot point. However, if it were to reset today it would be ~2 % lower than the initial rate I got (5.25 to 3.30). This would seem to at least in the short term help many homeowners until rates rise, presuming that these owners cannot refinance. Is my ARM the exception and not the rule?

Agree with John. The big pressure on high end towns will be the disparity with the "lower" end towns. High end towns will have to prove that they provide some better value worth the premium.

#6. The problem is going to be in a couple of years when the peak resets occur and mortgage rates are (inevitably) higher. I suspect we are just going to see a replay of sub prime all over again in the prime market.

You are making the right decision to lock in now. But how many can't refinance now because of negative equity? We had low (not as low as now) interest rates during the peak of resets in sub prime and that still caused a foreclosure crisis.

We're not out of the woods yet as far as the mortgage crisis.

Now if only halfway decent, small single family homes close to the city in nice neighborhoods would come down in price so that a couple with a combined income of just of 100K could afford them without being house poor . . .

Of course, while luxury properties go down later, and less, they still go down. Wealthy homeowners just aren't living paycheck to paycheck generally, so they can delay forced sales. But after a certain period of time, forced sales appear even in luxury markets and the market re-adjusts.

BV - issue is actually recasting, not resetting, for some loans. Resets are down now, as you say. And good idea to refi - we may well have massive inflation in 6 years, I'd be extremely uncomfortable with a reset then. (we may not as well - all depends on the effects of the massive amounts of money being pumped into the system. Ironically, if the "it was just a minor blip, things are getting better crowd" we will have massive inflation and a follow on recession as the Fed yanks liquidity out of the system.