1650 E. River Road
Bank Owned Properties (Foreclosure Homes) Are Showing Up at the $1,000,000 Plus Price Point — More Will be Coming!
High-end foreclosures are starting to show up in the Tucson marketplace. Homes above $1 million are coming up as REO (Real Estate Owned Properties). The reasons for this are many, and I predict that these high-end foreclosures will continue to escalate in number. One reason that this is happening is that many would-be developers decided real estate was doing so well in 2005 that they were going to buy a parcel of land and develop a million dollar or multi-million dollar property. From point of decision to completion, development time is 9-18 months. Now in 2008, the market is severely depressed and the amount the developers thought they could sell the property for is not even possible, and the cost to build is more than the market value of the home. This leaves the developer in a tough situation unless they have major reserves to hold the property or pay out of pocket to get it sold. Many of these would-be high-end developers do not have reserves or did not anticipate cost overruns that pushed the costs up on their home, making them too expensive to sell and netting them a foreclosed property.
The other main reason that the high-end is starting to show cracks in the pricing power of sellers is the weakness of the stock market. Most buyers for homes over $750,000 — and especially higher than $1,000,000 — derive their buying power and psychological motivation from the stock market. When the market(s) are in uptrend, it increases their actual and perceived wealth, allowing them to purchase homes that are more expensive or a second or third home. (Tucson Arizona ranks high on the list of destinations to posses a second or third estate.) Now, with the stock market(s) in a severe downtrend, potential buyers are just trying to protect their assets and are not even considering making a large home purchase. On the selling side, some homeowners may have taken large losses in the market and have decided they do not really need a second or third estate and are deciding to place their home on the market to raise some cash. Put that together with the large number of high-end homes that were developed by would-be developers (who most likely should not have been taking their first foray into residential development at the 1 million dollar plus range), and it’s a recipe for serious issues on the high-end.
Hopefully the damage is not too bad. Tucson’s job market seems strong, although there have been several fire sales of high-end mortgage brokers’, real estate agents’, and real estate developers’ homes who just wanted out of their properties now that the real estate market has been in a serious decline. I have personally seen at least a dozen high-end properties sold for 80% of value or less just because the owner was a mortgage executive or a high-flying real estate developer who could not sell any of their inventories. Even many super-successful real estate agents are having a hard time with large mortgages on their homes since the hard market has plunged revenues that were very solid for the past 10 years. Here’s an example of a high-end foreclosure property currently on the market in Tucson Arizona.
This foreclosure property is listed for sale currently at $1,699,900, and is down $200,000 from its original listed price of $1,899,900 on 1/20/08.This home is over 7500 square feet, located on the northeast side of Tucson on just over an acre of land. Bank owned/foreclosure homes could be some of the best opportunities in the market. Banks desperately need to get rid of these ultra expensive homes quickly, as the $200,000 price decrease in less then 2 months indicates. Buyers who can afford this level of property can negotiate hard to command an amazing price at the high-end price points.
(Courtesy of Bob Zachmeier of Win3Realty)