High-End Homes- Disaster or Opportunity?

Yesterday's Wall Street Journal included an article that echoed what I have been saying about the market for $1M and above homes. Higher mortgage rates (6.35% vs 5.25% yesterday), higher down-payment requirements (25% to 30% or more vs 3.5% for FHA) and no "buyer incentives" (ex. First-time buyer tax credit, New Home tax credit, etc) all have contributed to a dead high-end real estate market. Nationwide there is a glut of these homes on the market and experts predict more to come as unemployment increases. Nationally there is 21 months of inventory at prices above $1M compared to 16 montsh a year ago. In the $500K - $750K price range there is 11 months on properties available today versus 13 months a year ago. And at the entry level, there is 8 months inventory nationally versus 11 months a year ago says the National Association of Realtors.
Locally we are seeing the same situation: the >$1M price range has 14 months inventory as of July 15th; the $500-750K range has less than 3 months and homes below $400K have 18 DAYS of inventory!
We are seeing prices for upper level properties retreat to pre- 2002 levels. For example, a beautiful 18 year old home with 4000 sf and 4 BR and 3.5 baths plus office and game room, on 2.5 acres is priced at just over $1M today down from selling in 2005 for $1.5M. There are so many properties on the market and so few active buyers that "Feature Compression" is running wild again. This is when a small increase in price offers much more in the way of land or amenities. As prices fall at the upper tiers and sales pick up in the lower and middle tiers, huge compression occurs in the market above $800K or 900K. Buyers are not valuing "extra" land (ex. 5 acres when all they need is 2 acres) and so properties on larger parcels are suffering even more. Many sellers see this as a disaster. Many are renting in an attempt to keep their homes from foreclosure rather than selling at what they perceive as an unacceptable loss. Buyers should look at this as an opportunity to obtain homes with the quality and acreage they may have thought unobtainable in our area at prices they thought would never return.