Las Vegas real estate broker Ken Lowman would love to sell one of his luxury listings, an 8,500-square-foot., 8 bedroom masterpiece with an amazing poolside cabana and gourmet kitchen, for its original price of $4 million. But the value of homes in the area has plummeted, forcing Lowman to put the mansion on the market for nearly half its price.
"I have the home listed today for $2.35 million," said Lowman.
According to a recent report from online real estate service Zillow Inc., more than 28% of U.S. homeowners with mortgages have negative equity, which means they owe more on their mortgage than the home is worth. In Las Vegas, Zillow reported negative equity for a whopping 85% of homes in the city with mortgages. According to Foreclosure Radar, a website that provides daily foreclosure news and analysis, 30 single-family residencies in Clark County, Nevada, (which includes the city of Las Vegas) that had a loan amount of $1 million or more became a Trustee Sale in the first quarter of this year. Eight of the properties were sold to a third party investor, the other 22 became bank-owned.
“It's definitely challenging to have to sell property at prices vastly reduced from just a matter of three or four years (ago)," said Lowman. "In the luxury market today, 20-25% of the sales are unfortunately foreclosures."
For hard hit Las Vegas, and many other markets, there could be another problem on the horizon: the Obama Administration wants the government to gradually step away from the mortgage market and turn it over to the private sector. As a part of its plan, the temporary loan limit increase for expensive homes, also known as "jumbos," will expire after September 31 and will drop from $729,750 to $625,500. States with expensive home markets could be drastically affected by the move, which would mean larger down payments for higher-end homes.
"We strongly oppose a reduction in loan limits because it means financing would become even more difficult," said Walt Molony, a senior public affairs specialist for the National Association of Realtors. "If more expensive loans were entirely dependent on private financing, you could see a real crisis in areas like California when capital disappears."
But Stephen A. Miller, the chair of the economics department at the University of Nevada Las Vegas, said it shouldn't have much of an effect on the million-dollar luxury home market if you’re looking to get a loan.
"The real luxury homes that are in the $1 million to $5 million category are in the 'jumbo' category," said Miller. "You'll still be able to get the mortgage, but the terms may be a little harder and it might be more difficult to get one.”
In the meantime, real estate brokers are left with expensive homes that need to be sold. It's forcing Lowman, who's been in the business for 15 years, to think outside of the box when it comes to marketing his properties.
"I've actually done promotions where I've flown in potential, affluent buyers from Southern California to come out to (Las Vegas) to look at luxury properties," said Lowman. "From a buyer's perspective, it's a great time to buy because our properties are on sale in Vegas. There's probably never been a better time to buy a luxury home."