Spending and Saving

Why HENRY Can’t Get a House

There’s a donut hole in the real estate, and it’s about $2 million wide.

For a story I recently wrote for CNBC.com, I talked to real estate brokers and experts around the country about the future of the luxury housing market.  (Read Luxury Homes Go Begging.)

The upshot: If you have gobs and gobs of money, as usual, you’re fine. And the under-$1 million segment is starting to do better. Prices have come down substantially and buyers can get loans, because Fannie Mae and Freddie Mac are still guaranteeing and securitizing mortgages (bundling them together and selling them). But that only applies to loans under a certain amount—$729,000 in the most expensive parts of the country.

The challenge is if you’re a HENRY, says Peter Grabel, a private mortgage banker with Luxury Mortgage. That stands for High Earner, Not Rich Yet. “The $1 million to $3 million range, for people who aren’t super-rich—they’re having trouble getting money.”

The challenge is if you’re a HENRY: High Earner, Not Rich Yet.

There’s no second market for loans that are above Fannie and Freddie limits, so lenders have to hang on to the mortgages. Most don’t want to do that, and the ones who are willing to are making sure the loans are really solid. The days of 10 percent down are over—and forget 5 percent or nothing. You need to pony up 20, 25, sometimes 50 percent of the purchase price, or pay high interest rates. Or be SOL.

That means fewer buyers in that segment of the luxury market, which means prices might come down even more because of low demand AND the fact that people who are paying lots cash will expect big concessions.

Bad news if you’re a seller. But if you’re one of the lucky few with stellar credit and a fat savings account, this could be a perfect storm for buying.

Tags: poor rich, real estate