Unique Homes Blog

This is the second part in a yearlong series dedicated to tracking luxury real estate’s Road to Recovery.

In some areas, the supply of luxury homes on the market still numbers in years and prices have yet to level off, so it may seem little or no progress has been made on the road to recovery for luxury real estate. But think back to January, February and March 2009, and you realize what a difference a year makes.

“People were terrified. They didn’t know how things were going to turn out. Banks were failing. The stock market was still declining; wealth was diminishing. The net worth of the country decreased $22 trillion. The only people in the marketplace were looking for absolute steals. The only houses selling were ones where the owners had to sell,” says Bill Gorman, a Realtor with Coldwell Banker Residential Brokerage in Saratoga, Calif.

Today, a very small but growing number of agents such as Gorman may say the biggest issue in their area is limited inventory. Gorman’s market base, Silicon Valley, happens to be one of the strongest in the country, but in many regions the first shoots of new life in the market for homes priced above $750,000 are beginning to appear.

“Night and day,” is how Charles Orr, director of Coldwell Banker Previews International for New England describes the change from last year. “At this period last year, things were extremely quiet. Since early summer, it’s picked up quite considerably. Sales may be a little sluggish but the good news is there do seem to be qualified buyers looking, although they are slow to make decisions.”

In California, sales of high-end homes started picking up in late 2009, with homes priced $1 million and up showing the first year-over-year increase since July 2007. Additionally, the amount of time it would take to sell the current inventory of $1 million-plus homes on the market fell from a high of 26 months to 14 months.

In Washington State, higher priced areas such as Mercer Island, Redmond and Issaquah are seeing an uptick in sales. At this time last year, Seattle had just two single-family home sales of more than $2 million. This year, so far, there have been six, reports Sam DeBord, a broker with SeattleHome.com.

In Vail, January sales totaled $86.8 million, compared to $40.4 million in January 2009. Four sales came in above $4 million and the average price for a single-family home was nearly $1.7 million.

No city symbolized the plight of housing more than Miami, and expectations are it will be more than a decade before prices in Florida recover to 2007 levels. But lower values are bringing an influx of new residents to the downtown. Approximately 74 percent of the urban condos built since 2003 are occupied. Tendrils of recovery can be seen in luxury enclaves too. Still, Realtors such as Toni Schrager and Techrin Hijazi of Avatar Real Estate Services sold a $7.2 million property on Star Island after just more than a month of being listed.

Even Las Vegas shows good signs the upscale market is beginning to revive off the Strip. Suddenly, says Rob Jenson with RE/MAX Central, contracts are being written for properties in some of the most desirable upscale communities such as The Ridges and Red Hawk. “Prices have gone low enough so people are recognizing the value. Either they are jumping in and buying because they recognize the value is here or they feel comfortable enough to buy,” he says, underscoring the dynamic that is moving the upscale market forward.

Las Vegas sellers aren’t the only ones accepting that 2007 is long gone and pricing homes in line with current values. According to Trulia, the average amount slashed from homes listed at $1 million and above is 14 percent off the original list price.

“It’s taken a long time for the real estate community to be realistic,” says Royce Cablayan with Coldwell Banker Residential Brokerage in Los Altos, Calif.

For both buyers and sellers, getting on with their lives has become an important motivation. “We’re a year to 16 months from the eye of the storm and any time you get away from the eye of the storm, people begin to think about getting on with their lives,” says Michael Pierson, president of Prudential Rubloff Properties in Chicago, Ill.

Half Full or Half Empty?

Where we stand on the road to recovery depends on how you look at the statistics. Consider the most recent numbers. Existing home sales dropped 7.2 percent in January from December 2009. The pending sales index, a forward-looking indicator based on the number of signed purchase contracts, also fell 7.4 percent. But sales are still up by 11.9 over January 2009 and pending sales are 12.3 percent higher than January 2009.

In California, sales fell 10.6 percent in January over the prior year but the median price increased by 15 percent, which was the greatest year-over-year percentage increase since December 2005. On a month-to-month basis, the median fell by 6.3 percent over December 2009. Although the monthly decline was large, it was less than the declines for the same time period in both 2008 and 2009, when the median price fell by more than 11 percent.

Florida sales increased by 24 percent, making January the 17th straight month that sales have improved over the prior year. January sales of existing condos rose 81 percent over the previous year.

January’s lower figures brought a lot of speculation that the feeble recovery was over before it had begun. Lawrence Yun, chief economist for the National Association of Realtors, attributed the slowdown in real estate to harsh weather in many parts of the country and Realtors such as Barbara Cleary, owner of Barbara Cleary’s Realty Guild in New Canaan, Conn., agrees the unusual snow and cold held some back. However, she says, “The market is getting better and pending sales are strong,” although the majority are still in the lower end of the market.

Others, such as Mark Zandi, chief economist for Moody’s Economy.com, see the slowdown as an adjustment following the boost from tax incentives. It should be limited mainly to the first quarter of 2010 with modest improvement slowly beginning in the second quarter and continuing to edge up through 2011. Price recovery will lag behind sales because of the large number of short sales and foreclosures, which will continue as more homeowners hit by job losses strategically default.

No matter what the cause, current stats simply reflect the much-anticipated bumps on the road to the new normal for real estate.

The New Normal

Realistic buyers today are scaling down expectations, often purchasing less than they can afford. Under luxury’s new mantra, if a 6,000-square-foot home meets their needs, buyers are not reaching for the 8,000- or 10,000-square-foot home, even though they could easily afford a larger home. Not wanting to appear too ostentatious has become a guiding principle for many successful consumers and the new normal for luxury may be a return to values once identified as “old money.”

Government Incentives

Quite a few agents credit the tax credits with creating a ripple effect that percolated through many price points, adding momentum to move-up buyers.

Chasing The Shadow Inventory

The much-predicted shadow inventory of potential foreclosures hasn’t materialized yet, but luxury real estate is developing another shadow inventory — properties offered for sale but, at the request of owners, not placed on the Multiple Listing Service. Essentially this is “trying out the market.” Serious sellers should beware of this strategy, say many agents. It limits the exposure of the property but also makes it very easy for an agent to overlook the property when searching for homes to show prospective buyers.

Bay Area and Silicon Valley

The Bay area is one of luxury’s star performers. After plunging at the beginning of 2010 to the lowest point in a year, prices are up sharply. The median in many upscale ZIP codes hovers just less than $2 million, according to the Institute for Luxury Home Marketing’s weekly index. Since the beginning of the year, the housing market has heated up considerably here. The phones are ringing, but mostly buyers are calling, says Nina Hatvany with TRI Coldwell Banker in San Francisco. If anything, there are not enough luxury homes to meet buyer demand. Sales in Silicon Valley took off mid-2009 and prices also have been on the rise, leveling off just recently. The move-up market is particularly strong with people selling their $1 million and $1.2 million homes and buying more expensive properties. “There is definitely more confidence among buyers,” says Royce Cablayan with Coldwell Banker Residential Brokerage in Los Altos, Calif.

Chicago

“Our activity is significantly up,” says Michael Pierson, president of Prudential Rubloff Properties. The luxury market has perked up a lot, not only in showings but also in contracts written and in closings. Year to date, sales above $1 million are up 65 percent in volume. “We’re doing fine in the luxury market. We’ve had a very good start to 2010,” says Ronda Fish with Sudler Sotheby’s International Realty. Looking ahead, contracts for pending sales overall are up 55 percent in total units in Chicagoland. While stats are getting a boost from the number of first-time buyers, the number in other price brackets is up as well, a good indication that move-up buyers are also active. “The market definitely has been accelerated by the tax credit,” says Pierson. We are very encouraged about the activity in the luxury end of the market in Chicago and the surrounding metropolitan area.

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