US home sales up – for everyone but the rich

The Becker mansion in New Port Richey, Fla., was put up for sale for $1.6 million in 2007 – when times were far better for high-priced homes.

Residential real estate is on the rebound. The latest indicator – a forward-looking gauge known as pending home sales – has risen for the fifth straight month. But there's one area where the situation is getting worse: high-priced homes.

Selling a mansion worth $2 million or more? Good luck. Sales of those properties were down 39 percent in June from the same month a year earlier, according to unpublished figures from the National Association of Realtors (NAR). Sales of cut-rate mansions – you know, the ones that people pick up for $1 million to $2 million in pocket change – fell 28 percent during that same period. By contrast, sales of homes under $100,000 soared 39 percent.

Almost makes you feel sorry for all those millionaires. (Almost.)

Of course, rich people are in denial about real estate price declines as much as most Americans were a year ago. So sales prices at the high end have fallen nowhere near the roughly 25 percent cut that other properties have seen, says Lawrence Yun, the NAR's chief economist.

As a result, pricey homes sit – and sit – on the market.

A year ago, the market of $1 million-plus homes had about 16 months' worth of homes for sale; last month, that was up to 21 months, according to the NAR. That's a sharply different scenario than the 6 months' supply for homes selling for $300,000 or less, down from 8 months a year earlier. (Click on chart above.)

What's gone wrong for the wealthy? Two words: jumbo loans.

The fallout from the financial crisis has made big mortgages significantly more expensive: an extra 2 percentage points for a $750,000 loan (with no points and 20 percent down) in the New York metro region; an added 1.6 percentage points for the same-sized loan in Chicago. In normal times, the premium on a jumbo loan might be a 0.2 percentage point, Mr. Yun says in a telephone interview.

"There are very few buyers and many do not want to commit on jumbo mortgages," he says. "They have higher incomes, higher credit scores [than the typical buyer]. They're asking: "Why do I get hit with higher interest rates?"

The NAR is asking the Federal Reserve to step in to bring down interest rates on jumbo loans in the same way it has reduced them for regular home loans. So far, though, the government's sympathy for the rich hasn't been overwhelming.

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