'Declining Market Values' Slow Luxury Sales: CT

This Connecticut article provides a rare look at that states' housing bubble. "Individual markets across Connecticut show new construction activity, positive sales and quality listings, including homes carrying multi-million-dollar price tags. 'There is a lot of new construction in the Greenfield Hill area [of Fairfield], and more and more people are pulling down little Capes on the beach and building beautiful new luxury homes instead,' says Mary MacKenzie, realtor in Fairfield. In addition, Fairfield has a strong new luxury construction market." "'The newer constructions are top-of-the-line, with high-end appliances and high-end construction details,' says MacKenzie. 'Those are gorgeous properties, but they also sit on the market because there aren't the number of buyers out there that can afford that high end.'" "'A lot of the people who have purchased 5,000 to 6,000-square-foot homes have lived in them for a year a two,' says MacKenzie. 'Then they decide that these homes are just way too big, and they want to downsize.' Consequently, this trend puts the homes that are only a year or two old right back on the market." "This turnover not only helps drive prices down for newer homes, but also presents more opportunity for Connecticut's mortgage brokers. So-called jumbo mortgages for luxury homes constitute only a small percentage of West Haven-based business, says Jack Ellison. This already small percentage might decrease further in 2006. 'I think we will see, not just in mortgages but the real estate market in general, sales of higher-end homes slowing down,' says Ellison. He believes this will result from declining market values, rising interest rates and a greater tendency toward caution on behalf of homebuyers." "Of those customers prepared to invest in a luxury home in 2006, many will be high-end borrowers seeking greater flexibility and options in their mortgage products. 'These borrowers like our option ARM [adjustable-rate mortgage] product a lot,' says Ellison." "Ellison recommends that homebuyers not worry too much about rising rates or declining market values. 'The fact that sales prices are stabilizing or declining slightly is not a bad thing for all of us,' Ellison says. If home values drop a few percentage points this year, but stabilize for a while and then increase again, say, in 2010, homeowners retain the equity that accumulated over four years. If, on the other hand, prices continue to increase drastically, eventually the market will hit a bubble." "'When that bubble bursts,' says Ellison, 'it is much more dramatic in its decline than a standard stabilization.'"