Gregory J. Heym
Executive Vice President, Chief Economist
As single-family home sales and home building stocks tumble and signs of a popping housing bubble pop up everywhere, one corner of the market seems as unperturbed as a socialite at tea-time: it's the market for homes that sell for $5 million and up.
It's a tough market to get a handle on. Nationwide, estimates Walter Moloney of the National Association of Realtors, it's estimated that homes that sell for more than $1 million comprise less than 2% of the entire market (even though that's the average price today of a Manhattan condo). So the higher-priced spread is a considerably smaller batch of large properties, and comprehensive data showing transactions is nonexistent.
In their absence, we spoke with brokers in several of the country's most excpensive districts, those with clients for whom money is always an issue, but seldom a restriction. They told us an almost uniformly cheery story that seems to hint at a still surging wave of private capital looking for, well, a home.
Gregory Heym, an economist with Terra Holdings in Manhattan (parent company of Halstead Property), says that while this slice of the market parallels some trends around the country, 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. People are less price sensitive, and they want to prove that they're as smart at buying real estate as they are at buying companies."
For homes at $5 million and up, sales in 2006 stood at 40 at the end of September for all of Palm Beach County; barring a fourh-quarter surge, it's unlikely that the number will equal 2005's 73, says Ava Vandewater, an executive vice president with Browh Harris Stevens of Palm Beach. So far this year, the average home in this exclusive Florida enclave sold for $4.63 million, a chad down from last year's $4.95 million.
"There's no doubt that we're weaker than last year," says Vandewater. However, she says buyers have been returning as they realize that "the bottom hasn't fallen out." Time has ceased to be as pressing a factor. "Before, you had to act fast, and there was little room to move on price."
Vandewater 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 to $2.5 million are "very weak," considerations such as the mortgage interest deduction aren't a factor at the $5 million level. "We would suspect some weakening of that market, but generally prices will seem to hold for the state." After all, adds Malta, "There's lots of Google money."
"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."
Joshua Saslove of Aspen, Colo.-based Joshua & Co. expects to have little trouble selling his most daunting offering: the so-called Hala Ranch, a 56,000-square-foot, 15-bedroom extravaganza built by Saudi Prince Bandar that Saslove has listed at $135 million.
Noting a distinction without a difference, Saslove says that 95% of his clients are buying second, third and fourth homes rather than primary residences; he adds that sales above $5 million are up from 2005 (he's sold seven this year vs. 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 they haven't done so," he says.
As for the country's two main money centers, New York and Los Angeles, business is brisk, and could get more so next spring when some $36 billion in Wall Street bonus money, a 30% increase from last year, hits the market – and that's just from the top five investment banks "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."
In markets from Beverly Hills to Naples, Fla. to Las Vegas, some of the biggest deals are for dirt. Sharon Dixon, owner of Custom Realty and Marketing in Las Vegas, is offering one lot for $20 million; the biggest amenity, she says, is its view of (and distance from) the Strip. The view brings the bucks, agrees Eleanor Berlin, a broker with a Sotheyby's Internatioanl Realty affiliate in Westchester County, N.Y. "Anything above $5 million has to be on the water," she says. And in Vegas, the high end is strong even though the lower end of the home-buying spectrum is suffering along with the rest of the country, "Last year, business was good," says Dixon. "This year, it's better."
So why are high-end homes moving? Cash. For most buyers, "the ability to buy is contingent on financing," says David Akre, co-CEO of New York Mortgage Trust (nyse:NTR). So today, cash buyers might be more prominent." ,Akre says that in 2004 and 2005, it wasn't uncommon to see mortgages for $4 million and up. "This year, it's far less common, and we've only done a handful company wide." In addition, waiting times for sellers have shot up from around 35 days to as long as six months.
None of those we spoke with expressed much concern about either their customer base or their prospects in light of the changing national picture at lower price levels. "We're a little less affected bythe economy," says Ava Vandewater, "becasue these are people with an incredible amount of money."
Wednesday, November 15, 2006