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Residential - News From Archives
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The Housing Boom
Hits the High End
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Multimillion-Dollar Homes, After Missing Out On the Hot Market, Are Starting to Sell Briskly By RUTH SIMON Staff Reporter of THE WALL STREET JOURNAL May 12, 2004 After a torrid period of rising prices in virtually every other price segment, the lagging high end of the housing market is finally starting to heat up. In the Naples, Fla., area, sales of homes priced between $2 million and $5 million jumped 96% during the first four months of 2004 over the same time last year, while sales of homes priced above $5 million surged 157%. In Greater Seattle, 48 homes priced above $2 million sold or were under contract this year through April, up from just 13 during the same period last year. And in California, there's now about a four-month supply of $1 million-and-up homes on the market, down from a nearly nine-month supply in March 2003, according to the California Association of Realtors. At Sotheby's International Realty, a unit of Cendant Corp. that sells high-end homes in 22 markets, revenues rose 95% in the first four months of this year. It's not just markets like Beverly Hills and the Hamptons that are hot. When Jerry and Debbi Zarrella put their 7,200-square-foot home in East Greenwich, R.I., on the market last winter, there weren't many lookers. But this spring, three buyers put in bids for the home, which has a two-story master bedroom suite with an exercise room and a sauna. A bidding war broke out, and the couple sold the house in April for $2.6 million, $100,000 more than the asking price. Of course, the relatively low number of high-end homes in any market means that even a small number of sales can carry a lot of weight. And the definition of "high end" depends a lot on where you live: A house priced at $1 million in many places is considered high-end. In Beverly Hills, it's a one- or two-bedroom condominium. As a result, data for national high-end home sales are hard to come by. But the consensus of real-estate firms in many areas is that after a long period of trailing the rest of the market, high-end home sales are finally taking off -- and they're not confined to states like Florida, an especially attractive place for high-end buyers because it imposes no state income tax. Florida also has a homestead protection law that protects houses from being seized by creditors, a factor for some buyers. Until recently, demand has been far stronger for starter homes and midpriced properties, with low mortgage rates turning renters into buyers and encouraging many homeowners to trade up. Overall, home prices climbed 7.5% in 2003, according to the National Association of Realtors. The recent jump in mortgage rates has only helped fuel demand as buyers scramble to close deals before rates move even higher. But upper-end buyers are less sensitive to changing interest rates. Sales were hit first by the post-boom stock-market downturn and then, more recently, by a weak economy and anxieties over war in Iraq. In cities such as Denver, San Francisco and San Jose, prices for high-end homes flattened or even dropped in the last few years, according to Fiserv CSW, a research firm. Last year "was not a banner year for anybody," says John Brian Losh, publisher of the "Who's Who in Luxury Real Estate" directory, which tracks the luxury market. Signs of Optimism Now, with the economy on the upswing and with the stock market rebounding over the past year, many high-end buyers are feeling more optimistic. One sign of the changing mood: The confidence of chief executives in the U.S. economy surged in the first quarter to its highest level in 20 years, according to the Conference Board, a nonprofit membership organization that regularly surveys CEOs in a variety of industries. The generous tax cuts enacted over the past few years have also put more cash in wealthy buyers' pockets. Even the recent dip in stock prices could be a plus, provided it doesn't put too much of a dent in a buyer's net worth. "We're a safe haven," says Stuart Siegel, head of Sotheby's brokerage arm. "We get the flight capital." In many ways, the high end functions as a separate real-estate market. It's driven more by the broader economic picture and the stock market than by interest-rate changes. Additionally, because there's such a big leap in prices from the middle level to the high end, there's less of a "trickle-down effect" to the rest of the market when high-end prices increase, says Rajeev Dhawan, director of the economic forecasting center at Georgia State University's business school. A Short-Lived Rebound? Some real-estate experts, such as Mr. Siegel, are concerned the rebound could be short-lived. Inventories are tight in many areas, and that hurts sales. Plus, worries about inflation, rising interest rates and the war in Iraq could lead some buyers to tighten their purse strings. And there a few signs that sales could soon be slowing down in some markets. In the Boston area, "the high end is getting a little bit more challenging," says Alan Rice, a senior vice president of Hammond/GMAC Real Estate. "There are more properties on the market in that price range and they are staying longer." Greg Scott, a real-estate broker in New Haven, Conn., says sales of properties priced above $1 million picked up in the first quarter. "But I do sense a slight shift in the market," he adds. "People are a tad more cautious than they had been." For now, though, people like Jim McMahon, a builder in Hinsdale, Ill., who specializes in high-end homes, are benefiting from the rebound. In the fourth quarter, he says, business was so slow you could "forget about traffic. We weren't even getting phone calls." Last week, however, Mr. McMahon sold a $4.6 million stone and cedar house with a wrap-around porch that sits on a three-quarter acre lot. He also has buyers interested in two other homes, priced at $5.75 million and $3.3 million. "There's a general sense of well-being," he says. A $16 Million Teardown Things are even steamier in Los Angeles, where demand far outstrips supply. In the tony Bel Air district, one house sold yesterday for $16 million, $2.5 million above the asking price. The buyers plan to tear it down and rebuild. "Sellers are putting these high prices on [houses], and what's incredible is that they are getting them," says Jeff Hyland, the real-estate broker who handled the sale. The supply of homes on the market is so thin, Mr. Hyland says, that he has his agents calling former clients and asking if they "would like to sell and make a couple of million dollars." In other areas, prices have come down enough to encourage buyers to come out of the woodwork. "Prices were too high last year," says Jane Powers, a broker with Ewing & Clark Inc. in Seattle. Now, she says, more sellers are pricing their homes under $2 million and sales in the $1 million to $2 million range are up 137%. | | ||||