Almost a quarter of American homeowners owe more on their house than it’s worth. Another quarter have less than 20% equity. About half of homeowners couldn’t get a mortgage if they applied today, says Paul Dales, seniorU.S.economist for Capital Economics.
Then, there is the other housing market, occupied by 1.5% of theU.S.population, according to Zillow.com.
Here, houses have outdoor kitchens and in-home spas, his-and-her boudoirs and closets the size of starter homes. This market is not local but global, with international buyers bidding in cash. And the gyrations of the stock market are cause for conversation, not cutting expenses.
In this land of luxury properties, the Great Recession seems over. Prices of $1 million-plus properties have risen 0.7%, according to Zillow. Prices of houses under $1 million have fallen more than 1.5%.
Normally, these two segments of the housing market rise and fall together. Now, they’re moving in opposite directions.
“Luxury is the best performing segment of the housing market right now,” says Zillow.com chief economist Stan Humphries.
After every recession since World War II, housing has led the economic recovery. Not this time. The renewed vitality in the comparatively small market for luxury homes is not enough to power a full-blown recovery.
This bifurcation in the market is yet another reason Michelle Meyer, chief economist at Bank of America Merrill Lynch, says her housing outlook is “increasingly downbeat.”
The phenomenon is not limited to real estate. You can see the same split elsewhere in the economy. Sales at Saks vs. Walmart. Pay on Wall Street vs.Main Street. Corporate profits vs. family balance sheets.
The divide also is making credit a perk of the rich. Mortgage rates are the lowest in decades. But what good are absurdly cheap rates if you can’t get a mortgage?
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