Mortgages and the Luxury Home Market

If you've been looking for a home, you already know mortgage rates are ridiculously low. It's what's been fueling the increased activity in the luxury home market. Today's rate on a 30-year fixed mortgage, from $625,500 to $1 mil, is 4.375% A 15-year fixed rate is 3.375%. With prices and mortgage rates way down, luxury homes should be flying off the market. After all, there are still high-income buyers out there, But, I think there's something that keeps some luxury homes from selling, and it's not the price. It's the size., While some people still covet 10,000 sf homes, most buyers I'm working with are young, and they want a life outside their home. While they want a spacious home, preferably new or new-ish, they don't want a home over 6,000 sf. While I don't claim to know every luxury home buyer's wants and needs, the prototype of today's buyer seems to be:

* Under 40

* Needs 5 bedrooms, at least 3 baths and a 3-car+ garage

* Wants to spend $2-2.5 mil

* Doesn't want a pool, but wants property large enough to accommodate one should they change their minds

* Wants new or no more than 10 years old

* Wants a minimum of an acre of property

If the mega-mansions continue to sit on the market without selling, what happens to them? Even if these homes get reduced to make them affordable, what happens to the taxes on them? If the home is currrently assessed for $3 mil, but it only sells for $1.3, the taxes have to be reduced. In towns like Franklin Lakes, that would mean a huge loss in revenue for the town. How do they make that up?

We have already seen a marked change in new construction. First of all, there's very little, if any, spec homes going up, and when they do, the price is inevitably far lower than we've seen in towns like Franklin Lakes. My guess is buyers start demanding smaller homes with top-of-the-line luxury amenities. Builders have failed to stay current with who their buyers are and what they want. As Bob Dylan told us, "The times they are a-changin.'"