Gregory J. Heym
Executive Vice President, Chief Economist
By Peter Slatin
Luxury apartments aren't the only homes to weather the housing downturn. The market for single-family houses selling for $5 million and up looks as unperturbed as a socialite at tea time.
Brokers in several of the country's most expensive districts tell an almost uniformly cheery story, one that seems to hint at a still surging wave of private capital looking for, well, a home.
"Our market is strong as can be, especially for homes $10 million and up," declares Jeff Hyland of Beverly Hills brokers Hilton & Hyland. "We've sold more this year than last year. The rich get richer."
Even gargantuan houses are moving. Joshua Saslove of Aspen, Colo.-based Joshua & Co. expects little trouble selling the Hala Ranch, a 56,000-square-foot, 15-bedroom extravaganza built by Saudi Prince Bandar that Saslove has listed at $135 million.
The broker says that 95% of his clients are buying second, third and fourth homes, not primary residences. He says he has sold seven homes for more than $5 million this year, up from five last year, and he sees no signs of a downturn. "Even though there's been economic challenge that we're aware of out there, our buyers here who've signed contracts have had the opportunity to change their minds and haven't done so," he says.
Truly comprehensive data on transactions in the high-end housing market are nonexistent, but the sector is only a small part of the total housing market. Walt Molony of the National Association of Realtors figures homes selling for more than $1 million are less than 2% of the total.
Gregory Heym, senior vice president of research at Manhattan-based Terra Holdings (parent company of Halstead Property and Brown Harris Stevens), says that while this sector's trends parallel some of those in the general market for houses, it's a slippery fish to weigh.
"People used to look at the high end as a leading indicator, but I don't know that that's true anymore," he says. At the high end, "people are less price-sensitive, [but] they want to prove that they're as smart at buying real estate as they are at buying companies." In other words, showing off is a big part of the what-to-buy decision at this level -- and it often doesn't matter what else is happening in the economy.
While the high-end market may be insulated from many of the forces battering the rest of housing, it's not completely shielded. In Palm Beach County, Fla., for instance, the number of homes sold this year at $5 million and up stood at 40 at the end of September; barring a fourth-quarter surge, it's unlikely the final tally will equal 2005's 73, says Ava Van de Water of Brown Harris Stevens in Palm Beach. So far this year, the average home there has sold for $4.63 million, down a notch from last year's $4.95 million.
"There's no doubt that we're weaker than last year," says Van de Water. However, she says buyers have been returning recently as they realize that "the bottom hasn't fallen out."
Van de Water and other brokers agree that a flight to quality has taken shape at the high end.
"The market is generally very strong, but it's also very spotty and dependent upon the property," says Vincent Malta, president of the California Association of Realtors. But while sales of homes between $1 million and $2.5 million are "very weak," considerations such as rising mortgage-interest rates aren't nearly as much of a factor at the $5 million level, because many of those buyers traditionally pay cash. After all, says Malta, "There's lots of Google money."
Even at the $5 million-plus level, the market's become more discerning. "Properties perceived as overpriced are sitting," says Roger Erickson, a townhouse broker with Sotheby's in Manhattan. "Those with prices that can be justified are selling." Meanwhile, the New York area is preparing for brisk sales of luxury homes this spring, as Wall Street folk start spending year-end bonuses.
In markets from Beverly Hills to Las Vegas to Naples, Fla., some of the biggest deals are for dirt. Sharon Dixon, owner of Custom Realty and Marketing in Las Vegas, is offering one residential lot for $20 million. The biggest amenity, she says, is its view of -- but a safe distance from -- the Strip.
Among finished homes in Vegas, the high end is strong, even though the lower end is suffering. "Last year, business was good," says Dixon. "This year, it's better."
Few brokers of luxury homes express much concern about their prospects in light of the changing national picture at lower price levels. "We're a little less affected by the economy," says Van de Water, "because these are people with an incredible amount of money."
Monday, November 13, 2006