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Will Prices of High-End Homes Continue to Drop? Not So, According to REALTORS®

Tuesday, April 13, 2010

There is some speculation that the prices of high-end homes – those priced over $1 million dollars, will significantly drop this year and into 2011 as mortgage interests reset for adjustable rate mortgage (ARM) borrowers, especially if there is no improvement in the unemployment rate. Not so, according to REALTORS® familiar with the high-end markets in Silicon Valley.

Mark Burns, past president of the Silicon Valley Association of REALTORS®, is a REALTOR® with Coldwell Banker in Cupertino, one of the high-end markets in the Valley. He says the conditions described have more to do with areas where home buyers "have stretched to the limits of their qualifications."

"I'm not saying that everyone who bought a home in the past four, five, or six years, with an adjustable loan that is expected to jump significantly won't be affected just because they made a larger than average down payment and were more than adequately qualified for their loan. It is just less likely when you look at the financial structure of purchases in Silicon Valley," according to Burns.

"West Valley property and high-end property up the Peninsula have a tendency to be considered a destination rather than a way station," explains Burns. "People buying in these areas will typically have higher income and therefore, lower ratios for qualifying for loans and putting larger amounts down. These two factors alone dampen any serious consequences of an adjustable loan going up."

Burns says high-end markets generally have conservative buyers who opted for a 30-year fixed rate loan. "Even with the easier cash-out refinances available to homeowners in the past 10 years, these are still areas with low single-digit percentages of properties underwater," according to Burns.

Chris Trapani, broker and co-founder of the Sereno Group in Los Gatos, says he is actually seeing homes priced in the $2.5 to $5.5 million range "come alive" in the first quarter of 2010, in comparison to the same period a year ago.

"We have had probably two to three times the number of sales in the Los Gatos/Saratoga areas in this price range this year than last. Most of these are cash or have significant down payments," said Trapani.

Like Burns, Trapani does not see a significant drop in prices in the high-end market. "While I am not certain if the high-end has found a certain bottom, I don't expect any significant further decline," says Trapani. "There has been some increasing distress at the high-end for the past year, but a larger percentage of homeowners in this price point have owned these homes for 15, 20 years or more and have little or no mortgage, so there will be no large flood of homes in these price ranges hitting the market all at once, as we've seen in the entry level market." 

Dante Drummond, a REALTOR® with Coldwell Banker in Palo Alto, observes now more than ever, high-end buyers are being conservative in their buying habits and unwilling to take risks with marginal property location or condition. She advises buyers who believe they have found the right property not to wait too long.

In the Palo Alto area, median sale prices in the high-end markets this year are up 20 percent over the fourth quarter of 2009. "With 13 closed sales and 15 pending sales to-date, we would expect to see a higher volume of sales in the high-end market this year," Drummond predicts.

Trapani puts the market in perspective. "As confidence rises due to the improving economy and equity markets, the news about the median will continue to improve as more high-end sales close escrow. This will build on itself."


The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

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