High-End Residential: Clear as Caviar

Sand Castles - Half-Price Mansions - Barron’s -Karen Hube - 24 November 08

LUXURY-HOME SHOPPERS HAVE COME DOWN with a bad case of cold feet. From Malibu to Manhattan, would-be buyers of $5 million-and-up properties are pulling out of pending deals and suspending their searches out of concern over jarring drops in the stock market and dire economic news…The market has slowed to a crawl. Properties that once took a few weeks to sell are now taking months and months, even as prices continue to fall. Luxury-home prices are down an estimated 20% since peaking last year, and some savvy pros think they’ll drop another 10% to 15% before bottoming in 2010. That would be later than the likely bottoming of the general housing market; Barron’s has maintained that a leveling-off of the broader housing market is imminent in many regions (”Bottoms Up,” July 14). But the luxe downturn also began much later than the general slump. Until the second half of last year, most of the $5 million-plus market looked to be headed ever skyward.

…The late Brooke Astor’s 14-room duplex on New York’s Park Avenue is now up for grabs for $34 million, down from $46 million just this summer. Though some of the rooms are smaller than today’s billionaires might prefer, the apartment’s charms are considerable — six terraces, five wood-burning fireplaces and a red-lacquered library. And that’s to say nothing of its location — 16 floors up in one of the most prestigious buildings on Park Avenue, No. 778.

Out in posh Southampton, meanwhile, hedge-fund manager John Paulson, who made billions betting against housing stocks, just cut the price on his seven-bedroom “cottage,” complete with an enclosed pool, to $13.9 million from $19.5 million in April.

The New York area, in fact, is at the center of luxury housing’s latest problems. While so far the hardest-hit high-end markets have been Miami, Southern California, Las Vegas and Phoenix, the worst-off areas in coming months are likely to be Manhattan and surrounding suburbs, says Celia Chen, director of housing economics for Moody’s Economy.com. These areas are home to many Wall Streeters and other financial types, and layoffs in finance show no signs of ending. Some 70,000 financial-services employees in the New York area are likely to lose their jobs by the second quarter of 2010, says Economy.com. For those keeping jobs, bonuses could be down 50% or more.

All told, luxury-home prices in and around Manhattan could drop by as much as 20% to 25% over the next 12 to 15 months, says Jack McCabe, CEO of McCabe Research & Consulting, a real-estate consulting firm in Deerfield Beach, Fla.

That poses a dilemma for buyers: Go for a bargain now or an even bigger one in 2009? By the end of next year, “there will be some literal steals out there,” McCabe says. But holding out carries its owns risks. “Properties aren’t like stocks,” says Leighton Candler of the New York real- estate firm Corcoran, which is handling the Astor apartment. “The one you want may not be available by the time the market turns up.”

Right now, with global economies teetering and the Dow off 47% from its high last year, many potential buyers are simply mulling their options. “We’re in a lockdown, where there are sellers who want to sell and buyers who want to buy, but they are putting everything on hold,” says David Michonski, CEO of Coldwell Banker Hunt Kennedy in Manhattan.

The fact that there are few foreclosures on luxury properties has spared the high-end market from the kind of deep rout in pricing that has crippled the mainstream market, where prices in some regions have plummeted as much 50% from their 2006 highs, according to Fiserv Lending Solutions, a home-price research firm in Cambridge, Mass. While there were 886,920 foreclosures in all this year through September, only 11 were in the $5 million-and-up range, according to a database compiled by RealtyTrac, an Irvine, Calif., firm that tracks the foreclosure market.

The luxury market has also avoided a direct hit from the tightened mortgage market, because most ultra-high-end deals are cash transactions.

…The luxury market is also suffering from dwindling interest from foreign buyers…now that the dollar has strengthened and an economic crisis is sweeping the globe…A final drag on the luxury market is the inability of some folks to trade up because they can’t sell their lower-priced homes…

All this is causing inventories to soar to levels unheard of in recent years. Three years ago in the Los Angeles area, for example, “there was at any given time no more than a three-month supply of [$5 million-and-up] properties,” says Gary Gold of Hilton & Hyland, a real-estate brokerage in Beverly Hills. In the first quarter this year, that rose to about an eight-month supply, and “now we have over a one-year supply,” he says.

Not surprisingly, home builders aren’t getting many orders to build new estates. “We’re down 50%,” says Gene Salvatore, a partner at SWS Builders, a high-end contracting firm in Stamford, Conn., who says that he is keeping busy with renovation projects rather than new construction. But even the nature of renovations is different these days, he says. “Before, we’d be doing wine cellars, libraries, pool projects and master bathroom suites. Now we are doing more energy-related things that people feel will give them a return in a few years.”

…a raging buyer’s market…aggressive offers of as much as 30% below the asking price…The portion of $5 million-and-up listings that have had price reductions is significantly higher in many areas compared with six months ago. In Bel Air-Holmby Hills, Calif., 45% of listed high-end properties have slashed their prices, compared with 36% in May, according to Ziprealty.com, a national online-based brokerage. In Las Vegas, 29% of listings are marked down, compared with 17% six months ago, and in New York’s Westchester County, the percentage has increased to 28% from 19%.

…Some price-cutting has been much deeper. Consider the so-called Pink Palace, a six-bedroom Baroque-style mansion on Atlanta’s “billionaire row.” This newly renovated home on four acres, shown on Barron’s cover this week, was listed at $20 million last November, and the price was halved to $10 million this October…

In many markets, the biggest markdowns are in neighborhoods that have not traditionally been the core luxury hot spots but were bid up during the housing boom when demand for mansions soared.

“A dynamite house in the flats of Beverly Hills or on the Sunset Strip with a view isn’t going to see prices coming down,” Gary Gold says. “But a house in Nicholas Canyon or other fringe areas that would have gone for $10 million before will now go for about $6 million,” he states.

Those kinds of deals will only get better in the months ahead. Then, at some point, the economy will turn, unleashing pent-up demand for luxury homes of all kinds. “When there’s finally some good news,” says Nelson Gonzalez of Miami realty firm Esslinger Wooten Maxwell, “this market is going to come roaring back in a big way.” It’s just going to take some time.

[East End Two-fer] 3Q 2008 Hamptons/North Fork Market Overview + 1998-2007 Hamptons/North Fork Report Available For Download - Matrx.com -Jonathan J. Miller - 4 November 08

…The upper price range of the housing market continues to outperform the overall housing market. In each of the past four quarters, the luxury market, defined as the upper ten percent of all sales, saw a higher year over year quarterly increase in median sales price than the overall market. The luxury market increased 10.3% in median sales price and the overall market declined 9.2% in median sales price compared to the same period last year. The market area south of the highway consistently has the highest overall prices as compared to the areas to the north and on either side of the canal. Of the four regions, only south of the highway saw an increase in median sales price of 1% as compared to the prior year quarter…