What does “Luxury Home” mean? Are we talking about home prices above $750K…above $1MM? Or are we talking somewhere between $250K - $750K? At the height of the market in 2006 the median home price rose to as high as $303,900 according to ARMLS, and the median home price hit a low of $120,475 in March of 2011. That is a staggering 61% drop in median price over the last 5 years. So how do we define “luxury home” in the ever changing market?
To start, luxury homes in the “lending” world would be considered any type of loan that exceeds the conventional loan limits set by Fannie Mae and Freddie Mac. Those conventional loan limits sit at $417K. This means that any loan that goes above $417K cannot be sold on the secondary market and are considered “jumbo” loans for the AZ marketplace. Though you can still get financing on Jumbo loans, it typically takes at least 20% down to secure a jumbo loan. In essence, the luxury home market could be defined as any home purchase price greater than $522,500 (20% down would be a loan amount of $418K and thus would exceed the conventional financing threshold).
Now that we have defined “luxury home” using the facts and hard numbers, let’s look at what the future holds for luxury homes. All indicators point to a “caution” while proceeding with the sale or purchase of a home in the luxury market. There needs to be a strong reason behind selling a home in the “luxury” market as well as a strong need to buy in the “luxury” market. But, if you are in the market to buy a home, the great news is there are an ever increasing number of options when it comes to financing. No longer is it a full requirement to put a minimum of 30% down. Now there are 25%, 20% and yes, even 10% down options depending on your price range. There are also excellent asset depletion programs for loans above $300K (use your asset reserves to increase your income numbers – a creative way to help self-employed borrowers that write off expenses for tax reporting purposes) and rates are so very low on the 5/1 and 7/1 ARMS that it is even cheaper to leverage your money. I say the future is bright as affordability increases on these “luxury” homes.
Regardless, of what price of home you are in the market for, the truth remains that financing is available, you just need to explore the options. Most importantly, the idea of what is “luxury” has changed a bit because what you would have paid $325 a square foot for in 2006, you may be able to get for $150 a square foot or less. Couple that with increase financing options it might just mean the opportunity of now may be knocking on your door.