To compensate for that risk, lenders charge higher interest rates. The average rate for 30-year fixed rate jumbo loan was 6.91 percent last week, according to a survey by Bankrate.com, compared with 5.7 percent on a conventional 30-year fixed rate home loan. That higher rate, for example, means a borrower with a 30-year $750,000 loan would pay almost $600 more a month than at the lower rate.

Rates can be even higher for second homes, which are considered investment properties and therefore riskier for lenders. Second-home buyers play a large role in the luxury market, from Martha's Vineyard to the ski areas of Colorado.

"The second home market is pretty dead," Baumohl said. "Banks are being very careful who they provide loans to."

In Steamboat Springs, Colo., Randall Hannaway, a broker, estimates that about half of his business is in second homes. He's seen the luxury market get hit by higher inventories and lower selling prices.

"There's some really unbelievable buys," said Hannaway, founding partner of Colorado Group Realty. "Not all wealthy people are still wealthy. They may have to sell just to stay afloat, so to speak."

At the same time, banks are requiring down payments of 20 percent to 30 percent, even if the borrower has a golden credit history.

"Its far more difficult to obtain a loan today for a borrower than it was two years ago," said Rick Roper, a vice president with Golden Empire Mortgage in Bakersfield, Calif.

Industrywide, jumbo loans made up about 5 percent of the market in the first quarter of this year, compared with almost 15 percent in the first quarter of 2007, according to Inside Mortgage Finance.

To make up for falling home values, Erik Lebsack is throwing in his 2007 Mercedes Benz, worth about $80,000, with the sale of his four-bedroom home in Lithia, Fla. Appraised at $1.1 million in 2006, the home has been on the market since December for $779,777.

Lebsack said he never thought his house's value would plummet $300,000 in three years, and still is surprised by the reluctance of buyers to meet his price.

"People either need to get the deal of the century or they feel they're getting ripped off if they don't steal the house." Lebsack said.