Specifically, a recent report from Standard and Poor’s highlighted that 1/3 of all nonagency mortgages are more than 90 days delinquent and that there is a 49-month supply of distressed homes nationally. The inventory levels represent a 40% increase over the same period in 2009 and an 11% increase over Q3 2010.

Given that short sales and foreclosures currently represent 30% to 50% of luxury market transactions, they can no longer be considered anomalies. Non-distressed sellers need to be making more realistic decisions about whether or not to actively list properties for sale in light of this reality.

Every active and potential seller must run a net present value calculation to determine whether or not they should list, come off the market, adjust the asking price their property or explore accelerated sales solutions like an auction. The NPV should include the annual cost of holding the property including taxes, insurance, maintenance and an interest factor. Once the annual cost of ownership is determined, the comparable local supply should be divided by comparable annual absorption to determine how long a property will likely be for sale.

For example, the NPV of a property listed for $5,000,000 that costs $500,000 per year to own in a market with 24 homes for sale and eight comparable sales in the last 12 months (3 year supply) is $3,500,000. With a NPV calculation in hand, seller’s can make more realistic assumptions about time frames and list prices.

I think this is the most balanced and accurate reporting I have seen in a long time and expect the next year to unfold as indicated in this story.

In the luxury residential market, a significant percentage of properties were purchased as second or third homes and the prospect of being underwater by 25% to 50% is a recipe for many sellers to simply look for ways to walk away and mitigate further losses.

It will be very interesting to see this play out.

The property is listed with Hilton & Hyland and Dilbeck Realtors in Los Angeles in conjunction with Christie’s Great Estates. The house has a conservation easement to protect it from demolition or insensitive alteration, and to guide future restoration, preservation, and maintenance efforts.

Auction July 11, 2009

21.9 Million Dollar Estate at Auction July 11, 2009

A recent article in the New York Times really did a great job of summing up the current psychology surrounding Luxury Real Estate.  Spending time over the last few months in luxury markets ranging from Aspen, Colorado to Greenwich, Connecticut I witnessed firsthand the dramatic change in market sentiment and have made observations on my primary blog.