For many U.S. wealthy, housing crisis still a squeeze

By Nick Carey

ST. CHARLES, Illinois (Reuters) - Despite some signs that the worst of the U.S. residential housing crisis may be over, many wealthy homeowners are still being squeezed by the combination of weak home prices and the stock market crash.

"I think for wealthy homeowners it will get worse before it gets better," said Dennis Hedlund, founder of iEmergent, a forecaster for mortgage and real estate companies.

"I don't think home prices have bottomed yet. Many people are stuck at the high end, as there aren't many buyers out there," Hedlund said of owners of luxury properties.

From California to Massachusetts, the U.S. housing crisis came after years of easy credit and soaring property values. Towns like the western Chicago suburb of St. Charles saw an unprecedented growth of wealth, especially in high-end homes.

An hour by train from Chicago and known for good schools, St. Charles was a magnet for senior managers and professionals. But as the housing crisis that began in the subprime residential market spread up the property chain, the once-thriving high-end local market ground to a near halt.

"We've never seen anything like it," said Maurine Trafals, office manager at local realty agency Source One. "The market just stopped in the summer."

St. Charles, population 40,000, now has 74 homes for sale with buyers asking more than $1 million.

"That's a huge number to have on the market in a community of this size," Trafals said.

In 2009 five homes over $1 million have sold, compared with 21 in 2008. Prices are down 20 percent from the peak in 2007.

"There are fewer and fewer potential buyers out there, as mid-range homeowners are getting squeezed," said Ray Schafer, co-owner of home builder Michael Raymond Custom Homes, whose firm has had a luxury home on offer here for more than a year.

Schafer has cut his asking price by $50,000 to just under $1.2 million, without drawing out any offers.

"We can't hold onto inventory forever," Schafer said. "So we're just lowering the price until it's such an extreme bargain someone picks it up."

The national luxury market is weak on both the buyer and seller sides, coast to coast. Wealthy homeowners have seen cash reserves erode from the stock market collapse, which also hit retirement savings. The big drops in home prices have squeezed home equity loans. And many high-earners have also lost jobs.

"High-end owners have been hit from all sides," said Cora Berkery, a realtor at Surterre Properties in Orange County, California, site of Disneyland and hundreds of million-dollar homes.

Many wealthy homeowners have held asking prices high in the hope of outlasting the 2-year old property slump. But more are expected to slash prices in the coming year to avoid further losses or obtain cash, adding more properties to the market.