LEESBURG, Virginia (Reuters) - Million-dollar fixer-upper for sale: five bedrooms, four baths, three-car garage, cavernous living room. Big holes above fireplace where flat-screen TV used to hang.
The U.S. housing crisis has come to McMansion country.
Just as the foreclosure crisis has hollowed out poorer neighborhoods, “for sale” signs are sprouting in upscale developments so new they don’t show up on GPS navigation screens.
Poor people weren’t the only ones who took out risky, high-interest loans during the housing boom. The sharp increase in housing costs — and the desire to live in brand-new, spacious houses with modern features — led many affluent buyers to take out loans they couldn’t afford.
“People had in their head, ‘I need a mud room, I need giant columns, I need a media room, and I’m going to do anything to get it,”‘ said Robert Lang, co-director of Virginia Tech’s Metropolitan Institute, a research organization that focuses on real estate and development.
The crisis has hit especially hard here in Loudoun County, Virginia, where upscale developments have supplanted horse farms over the past fifteen years.
About an hour’s drive from Washington, Loudoun is one of the nation’s most affluent counties, with a median household income of $98,000, more than double the national figure.
The county has also ranked as one of the nation’s fastest growing in recent years as developers built thousands of super-sized, amenity-laden houses to keep pace with the booming high-tech economy.
These houses are sometimes nicknamed “McMansions,” disparaging both their extravagance and their look of mass production — like hamburgers from a McDonald’s restaurant.
Between 1990 and 2005, the county’s population tripled to 272,000. Many of those moving here relied on risky, high-interest loans to buy the house of their dreams.
“People pushed the limits to be able to buy. They couldn’t afford to buy there otherwise,” said Virginia Tech consumer-affairs professor Irene Leech.
High-interest loans accounted for 16 percent of the total during the height of the mortgage boom in 2005, less than other outer-ring suburban counties in the region but more than neighboring counties closer to Washington.
Now the bill has come due. One out of every 69 households in the county was in foreclosure in the last three months of 2007, well above the national average of one filing for every 555 households, according to RealtyTrac.
Most of these have been concentrated in the county’s poorer neighborhoods, but local realtor Danilo Bogdanovic says he is increasingly seeing more foreclosures on properties worth more than $800,000 as affluent borrowers burn through savings in a vain attempt to stay in houses they can’t afford.
“They’ve just prolonged the pain,” Bogdanovic said. “I don’t think they’re immune to it.”
At the end of 2007, 20 of the 25 houses for sale for more than $850,000 in Loudoun County appeared to be foreclosures, according to Tony Arko, his partner.
These can take years to sell, as they must compete with brand-new developments still coming online.
Housing prices in the county plummeted 8 percent in 2007, the sharpest drop in the region, according to the Washington Post. New home starts plummeted by 50 percent.
Bogdanovic and Arko have sold many foreclosed properties to investors looking to rent them out. But there’s no market for a million-dollar rental property, they say.
In the Beacon Hill development, a golf course snakes among large houses and gazebos set on rolling hills. Residents keep their horses at an equestrian center.
A 7,300-square-foot mansion on Spectacular Bid Place features three chandeliers, a spiral staircase and a state-of-the-art kitchen. The owner offered it at $1.35 million in January 2006, before foreclosing in August 2007. The house found a buyer in January 2008 — for $963,000.
Several miles away, the million-dollar fixer-upper with the holes in the walls has been on the market since December. It is still unsold.
Reporting by Andy Sullivan; Editing by Eddie Evans