Published May 1, 2007

Affluent housing markets shrug off sub-prime woes

(SAN FRANCISCO) Manhattan real estate broker Dennis Mangone is in a position many in his profession would envy: clients are rushing to buy as Wall Street money piles into the upper reaches of the island's housing market.

'People come to me and say, 'I need a two-bedroom for US$4 million,' said Mr Mangone, a broker with the Corcoran Group. 'The higher the price for the apartment the stronger the demand ... Penthouses are the first to sell.'

By contrast, Main Street real estate brokers in many US markets are waiting for the phone to ring as buyers bide their time - partly because sub-prime mortgage borrowers are defaulting at a brisk pace. Many analysts predict those defaults will prompt foreclosures, which will pull down home prices that had a huge run-up in recent years.

March saw a 7.3-month supply of existing single-family homes for sale in the US, up from 6.8 months in February, and the national median home price ticked down 0.3 per cent from a year earlier, marking eight consecutive falls, amid annualised sales falling 8.4 per cent from a year earlier.

Optimists say the data show housing is near a bottom. Pessimists say that housing is in store for more slow-going at best. However, they concede some markets will remain resilient, with lofty asking prices persisting despite the potential drag on the overall housing market from sub-prime mortgage defaults.

Analysts expect that, like Manhattan, San Francisco, parts of Los Angeles, Seattle and a handful of other affluent urban markets for homes will evade the housing slowdown.

Their economies are strong and demand for housing from higher-wage earners there remains buoyant. Also, those markets have few sub-prime borrowers.

Sub-prime mortgages allowed borrowers with blemished credit and limited resources to buy homes, typically entry-level homes in fast-growing regions with affordable housing such as the Inland Empire region east of Los Angeles.

By contrast, sub-prime borrowers are rare in affluent markets such as West Los Angeles because affordable homes are in short supply.

'To be living in West LA, to be able to afford it, you have to have a fairly high wage,' said Stephen Cauley, research director at the Ziman Center for Real Estate at the UCLA Anderson School.

As in West Los Angeles, San Francisco home prices are holding at astronomical levels because its housing stock is small while demand from affluent buyers is persistently high.

'Those are not sub-prime people,' said Christopher Cagan, director of research and analytics at First American CoreLogic in Santa Ana, California.

While the national median home price has ticked down, San Francisco's wealthy home buyers pushed the local median price paid for a home in March up 5.6 per cent from a year earlier to US$785,380, according to the California Association of Realtors. - Reuters