The stock market plunge and asset crash that hit last fall, along with stricter lending rules such as higher down payments for loans on luxury properties, are contributing to the drag on high-end sales.
And while high-cost markets are feeling a pinch in sales, luxury real estate values have generally held the line better than those of other real estate market segments, according to industry data.
The Institute for Luxury Home Marketing reported that days on market increased from about 120 days in August 2008 to about 180 days in August 2009 for luxury homes (those priced above $500,000), based on Altos Research data from 31 major U.S. metro market areas. The institute provides training and certification for real estate professionals who work with luxury properties.
The median value of U.S. luxury-market homes was about $1.15 million in mid-August 2009, roughly the same as in mid-August 2008, the institute reported this month, based on a 90-day rolling average price statistics compiled by Altos Research.
By comparison, the National Association of Realtors reported that the national median price for all U.S. resale homes plunged 15.4 percent in June 2009 compared to June 2008, and dropped 15.6 percent in second-quarter 2009 compared to second-quarter 2008.
The California Association of Realtors reported that the supply of for-sale homes priced above $1 million in the state was above 11 months in June 2009 (up from about nine months in June 2008), while the supply of homes priced at $500,000 or less was below four months (down from about nine months in 2008) — the supply indicates the time it would take to exhaust the for-sale inventory at a given month’s sales pace.
And some markets are seeing fierce competition and multiple offers for low-cost and middle-tier properties (see Inman News), while the luxury market is not enjoying the same robust activity.
Luxury homes spent about 178 days on market, on average, as of the latest ILHM report, with 41 percent of the properties experiencing price decreases. About 16 percent of the properties have been temporarily removed from the market and relisted at least once.
The volume of luxury homes for sale was roughly the same in the Aug. 16 report as it was at the same time last year.
The Honolulu metro area had the highest median single-family resale price in the second quarter this year, at $569,500, followed by the San Jose, Calif., metro area, at $500,000, according to a National Association of Realtors report released this month.
The Honolulu metro area median price fell about 10.5 percent from second-quarter 2009 to second-quarter 2008, according to National Association of Realtors data, while the San Jose metro experienced a 33.8 percent decline.
Luxury-home values appear to be more stable. Altos Research reported that home values for the top quartile, or most expensive 25 percent, of homes in the city of Honolulu have held fairly steady in the $3.23 million range from August 2008 to August 2009. But properties in this tier spend an average 287 days on market, compared to an average 204 days on market for the overall Honolulu market. …CONTINUED
A report on luxury market trends by Coldwell Banker Residential Brokerage in Northern California found that 215 homes above $1 million were sold in June this year in Santa Clara County, Calif. (San Jose is a major city in this county). But year-over-year sales in June were down 25.3 percent from the 288 total in June 2008. The median sale price of luxury properties in the county was $1.32 million in June, down 6.6 percent compared to June 2008.
Cheryl Gillotti, a Realtor with Caron B Realty in Honolulu, said that while there has been a seasonal spike in home sales, overall sales have been low since the economic disaster in September 2008.
While the Hawaii housing market is known for its Californian and Asian investors, a new portfolio of buyers has emerged that includes Canadian and Australian investors, Gillotti said.
She said she will soon be locking in a deal with a Canadian doctor for a $3.5 million house. In another deal, a buyer born and raised in Honolulu will be buying a $6 million house.
In San Jose, upscale homes are selling, but at a slower pace compared to the general market, according to area Realtor Don Orason. He attributed the slowdown to a requirement for larger down payments.
In 2008, a luxury home in the region had an average list price of $2.09 million and spent an average 75 days on market — that compares to a 2009 average list price of $2.11 million and 79 days on market.
Luxury homes appear to be holding their value better than typical homes in the San Jose area.
The median price of single-family homes priced under $1 million in the San Jose area has plunged 40 percent from June 2007 to June 2009, while the median price of homes above $1 million has dropped about 8 percent during the same period, according to Paul Zeger, CEO for Pacific Marketing Associates.
"We believe that is due to the fact that the ‘luxury’ homes are located in more desirable neighborhoods that have experienced a much smaller drop in values," said Zeger.
"If you look at all condominiums you see that those values are down over 50 percent in the same period."
While Orason said he does not believe there have been dramatic changes in the demographics of the buyers, the active buyers these days typically hold high-end jobs or have inherited a lot of money.
He said he recently had a 21-year-old buyer with $5 million to spend. He locked in a deal in the Almaden Valley worth $4.5 million — all cash. But the $5 million sales are not very common. …CONTINUED
Sales of high-rise condominiums selling above $5 million have slowed down since 2008, while single-family houses priced from $1 million to $1.9 million are selling actively, based on low interest rates for established buyers, said Zeger.
He also said that some buyers are finding it difficult to qualify for loan approval in the current market.
Price changes and increase in sales are not the only trend visible in these market areas. Since 2007 there has been a major change in the attitude of buyers, Realtors told Inman News.
Honolulu Realtor Duke Kimhan said buyers are far more cautious today than they were before the economic downturn.
"They are careful to look at all possibilities and putting (contingencies) in the contracts for protection against a low appraisal or a bad inspection flaw that was unforeseen," he said.
He also said that buyers these days are very educated and are asking a lot more questions than they were just a year ago.
And Zeger pointed out that buyers who purchase high-end homes are veering toward subtleness.
While people want "the luxury of a high-rise," they are also choosing a downgraded outward display of wealth, he said.
"People are chasing good prices over prestige to demonstrate their wealth and intelligence," he said, nothing that some buyers feel that it is inappropriate to flaunt luxury when so many people are out of work and in financial crisis.
Riya V. Anandwala is an editorial intern for Inman News.
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