Unique Homes Blog

This is the third part in a yearlong series dedicated to tracking luxury real estate’s road to recovery.

Amidst mixed signals in the overall real estate market, there are indications that luxury may start the comeback, with waterfront properties already taking the lead.

By Camilla McLaughlin

Halfway through 2010, the new normal — what real estate will be like after the downturn — is still taking shape. Although the stabilization that began in 2010 continues, progress is slow and a number of uncertainties, including foreclosures, strategic defaults by underwater homeowners and the post-tax-credit fallout, still hangs over the market.

“The market’s still taking baby steps on a long road to recovery, trying to find its footing. It’s unclear which of today’s sales characteristics are part of a new reality, and which are still temporary turbulence. The mortgage market, especially for larger home loans, is definitely dysfunctional. Obviously things would be different if the job picture were brighter,” observed John Walsh, president of MDA DataQuick, a real estate data tracking company.

Indicators continue to be a mix of negatives and positives. Price reductions are slowing. Recent stats from the real estate search engine Trulia show that 20 percent of the homes listed had at least one price reduction in April 2010 compared to 27 percent in April 2009. Mortgage insurer PMI found a reduced risk of future lower home prices in 93 percent of the 384 metros they tracked. Lawrence Yun, chief economist for the National Association of Realtors (NAR), expects to see prices rise by 2 to 3 percent this year.

On the other hand, Mark Zandi, chief economist for Moody’s Economy.com, speaking at NAR’s mid-year meeting, said he expected to see no real price growth in 2010 and 2011 because of the number of foreclosures. The good news, though, according to Zandi is: “The housing crash is over — nearly. We are now near the bottom.”

The most recent S&P/Case-Schiller figures do cast a shadow on any overly optimistic outlooks, but they also appear to underscore Zandi’s perspective. The April U.S. National Home Price Index showed a 2 percent improvement in the first quarter 2010 over first quarter 2009. However, 13 of the 20 metros tracked monthly showed a decline in values in March compared to February. New York, Portland, Chicago, Charlotte and Las Vegas posted new index lows. On a more positive note, Los Angeles, Minneapolis, San Diego and San Francisco all show gains. One standout is San Diego, which has had 11 consecutive months with increasing home prices.

Most experts seem to agree the recovery is underway but there still seems to be no certainty of how it will proceed. The road to recovery is as local as real estate itself, varying not just by location but also by price bracket.

The Smart Money is Back

The top real estate story for 2010 may turn out to be the resurgence of luxury. Led by a group many real estate agents are calling the “smart
money,” affluent consumers are once again buying properties, drawn to the market by great prices, opportunities to acquire exceptional homes and a growing awareness of the value of real property.

“There’s an impatience level for sitting on the fence. The California high-end buyer is not accustomed to not having what they want when they want it. They will only sit on the sidelines for so long. We’re seeing the smart money stepping into the market across the board” in our area, says Betty Graham, president and CEO of Coldwell Banker Residential Brokerage’s Greater Los Angeles company.

Nothing more aptly describes buyers today than “smart money.”  Not only does the phrase refer to a desire to take advantage of opportunities in the current market, but it also accurately portrays the awareness of value among consumers.

“Make no mistake about it. Buyers have regained their confidence in the market for luxury properties and are clearly willing to buy so long as the price is reflective of the competitive value that buyers in every price range now steadfastly insist on,” says Michael Saunders, owner of Michael Saunders & Company in Sarasota, Fla.

“The smart money is back in the market. People with cash have realized that buying real estate is a better investment” than bonds or other vehicles, says Tom Iovenitti, president of Coldwell Banker Residential Brokerage in Orange County, Calif. There is a significant upswing in demand for properties in the $3 million to $6 million range in his Orange County market. At the height of the market, these homes would have sold in the $7 million to $9 million range. Iovenitti is attuned to market cycles and he anticipates today’s buyers “will ride those properties up in the next upturn.”

What is smart money looking for? “The smartest, savviest buyers are purchasing the absolute best waterfront properties now. They are educated and know this moment is it and they will be the ones who get the diamonds. Others will say in years to come, ‘I had an opportunity but I hesitated and missed the moment.’ It will be the one that they almost had,” observes Jill Hertzberg of The Jills at Coldwell Banker Residential Real Estate in Miami Beach.

Recently, a Miami waterfront mansion once owned by Cher sold for $10.45 million, almost $2 million more than the price the property garnered at the top of the market. This sale demonstrates the staying power of rare, one-of-a-kind properties such as waterfront. “The laws of supply and demand will always apply, especially when you are dealing with a unique and exceptional piece of waterfront property,” says Jorge Uribe, who sold the property for ONE Sotheby’s International Realty in Miami.

In other parts of Florida, the luxury sector, especially properties on or near the water, is faring better than real estate overall. “Our sales for the first quarter were up over 28 percent,” says Joe Liguori with Premier Estate Properties in Boca Raton, Fla., noting that his market and his company saw the beginnings of a turnaround in the late fall of 2009.

On Florida’s west coast, “demand has come back very strong,” especially for waterfront, says Tom Heatherman, corporate communications director for Michael Saunders & Company. Beginning with the sale of a Lido Shores property for $8.4 million at the end of March, his company has had a number of record waterfront sales on Longboat Key, Casey Key and
Siesta Key.

In the Northeast, Nancy Dauk, executive vice president with Halstead Property in Darien, Conn., is seeing “renewed interest in location and waterfront. People are being very careful about what they spend, but they are out there.” Last year, the highest sale in Darien was $5.1 million for a home with water views. This year, an $11 million property in mint condition in a very desirable waterfront location sold within days. Dauk is also the agent listing Firwood, a historic property that is one of the largest pieces of waterfront to come on the market in her area.

In the Hamptons, first quarter 2010 sales surged 173 percent over the first quarter of 2009. The increase in the number of sales was the largest year-over-year gain in the six years Miller Samuel, appraisers in New York, have been tracking sales for Prudential Douglas Elliman Real Estate. Compared to the last quarter 2009, first quarter 2010 sales were down 13 percent. Miller Samuel notes this is a typical seasonal pattern. The median price was up 34.6 percent, which is a good indication that larger properties are selling, according to Miller Samuel.

Markets along the California coast are traditionally some of the first “to see the light” when the market turns around, according to Iovenitti. “We’re on pace to sell probably 30 percent more in the $4 million and up price bracket.” In Malibu, Coldwell Banker agent Chris Cortazzo already has had several significant waterfront sales greater than $10 million.

Adding to demand in both California and Florida is an upswing in the number of international buyers. High-end markets in Florida are seeing a significant number of Canadian buyers, and specific locations such as Sarasota and Miami also have a number of European buyers.

Cortazzo sees the number of European and Asian buyers in his market as a good indication that U.S. real estate is once again attractive. “They are casting a vote for our real estate, our economy. The U.S. is the safest bet again.”

Looking ahead, “the availability of credit is still a limiting factor and the world economy is a wild card, which could change the game, but residential real estate ranks as the “must have” asset in the minds of the affluent and this will motivate purchases,” says Laurie Moore Moore, CEO of the Institute for Luxury Home Marketing.

Fast and Furious in Canada

Luxury home sales in Canada also soared in the first quarter of 2010.

“Recovery in the upper end has been nothing short of remarkable,” says Elton Ash, regional executive vice president for RE/MAX of Western Canada.

“This segment of the market was hardest hit when the recession took hold — yet its comeback has been fast and furious. There is no doubt that mindset has changed and confidence has returned. One only has to look at the percentage increases to see the current upward trajectory.”

The bounce back in many areas — including Greater Vancouver, Victoria, Toronto, Ottawa, Montreal (Island), Halifax, and St. John’s — exceeds records set in prior years. Sales increased by 184 percent in Vancouver and 300 percent in Montreal. In Kelowna, a lakefront city in the Okanagan Valley of British Columbia, sales increased by 700 percent. Canada’s most expensive luxury markets are shared equally among the eastern and western regions, according to RE/MAX, with greater Vancouver offering the highest entry-level price point for high-end homes at $2 million, followed by $1.5 million in greater Toronto and Montreal (island).

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