Luxury Firesale
It wasn’t just the poor and middle class that utilized ARM products over the last few years to purchase homes. The wealthier also turned to ARM products to purchase luxury homes in areas of the country that were typically more expensive. Now, luxury homeowners faced with default pressures are panicing and selling their homes for less than their mortgages. Some are even turning to pre-foreclosure style auctions to cut their losses and run.
There are some within the industry cautioning against over reacting citing the cyclical nature of the real estate market. If and when possible, they argue that these luxury home owners should attempt to refinance and then sit back and wait for the market to improve.
Of course this approach would be viable if you actually had the cash needed to refinance. However, I’m going to go out on a limb here and speculate that many homeowners wouldn’t be taking the drastic step of auctioning off their homes in pre-foreclosure if they actually had the cash available to refinance. It’s more likely that many purchased larger homes than what they could actually afford and are now, like so many other Americans, strapped for cash and struggling to meet a burgeoning mortgage.
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