In literary circles, an encounter between Ernest Hemingway and F. Scott Fitzgerald began with the Great Gatsby author saying, "The rich are very different from you and me." To which the highly competitive "For Whom The Bell Tolls" writer disdainfully replied, "Yes, they have more money."
In the real world, the rich sellers are very different from you and me. They have the resources to wait out the market.
"When we look at days on market, we find the top-end sellers tend to be more patient in terms of how long a home will be on the market before presenting any kind of price reduction," said Scott Sambucci, director of business development for Altos Research in Mountain View, Calif.
He reiterates, "Top-end sellers keep homes on the market longer and take fewer price reductions."
According to Altos Research, at the start of 2011, percent price deductions for high-end properties were under 30 percent and declining, while average days on market was close to 165. Price deductions at the bottom of the property market reached 45 percent and stable, while average days on market was under 120.
"Everyone felt the pain from the recession," Sambucci said, "but there was less pain relatively speaking at the upper end."
There are a couple of reasons for this. First, at the upper end sellers have deeper reserves, so they don’t feel pressured into making a hasty transaction. They know their house might not sell for three months, six months or a year.
Whereas at the lower end of the market, homeowners who live paycheck to paycheck, when they need to get out of a home, they really do need to get out — and quickly.
Also, the market dynamics at the high end are different. First off, the higher the price tag, the smaller the pool of potential buyers, so one really has to wait for the right client to come in the door. Conversely, a high-end seller is usually a high-end buyer and someone who will spend $5 million or $10 million on a property is not just going to buy anything on the street.
Taking all that into consideration, I decided to see how a couple of high-end markets were faring as the recession — hopefully! — continues to ebb.
Forbes magazine does a ranking every year on the country’s priciest ZIP codes. In 2009, Alpine, N.J.’s 07629 was ranked No. 2 at a median home price of $4.7 million. In 2010, Alpine fell to No. 4 at $3.8 million. Over on the Left Coast, Newport Beach, Calif.’s 92661 was ranked No. 5 in 2009 at a median home price of $3.9 million; in 2010 it fell all the way to No. 16 at $3.036 million.
With those kinds of numbers, the rich certainly don’t look much different from the rest of us. I checked in with Realtors in both Alpine and Newport Beach.
The small township of Alpine can be found in Bergen County, just west of the Hudson River and in a short commuting distance to Manhattan. Besides the usual mix of high-finance folks, other residents include Yankee pitcher C.C. Sabathia, singer/mogul Sean "Puffy" Combs, and comedian Chris Rock.
Alpine has no sewer system (septic tanks), no mail delivery (you go to the post office) and until Sept. 11, 2001, no formal addresses. Prices peaked in 2006, noted Marlyn Friedberg, owner of Friedberg Properties & Associates in Alpine and other northern New Jersey towns.
In regard to Alpine, Friedberg said, "It’s not unusual for a home to be on the market for a year or two years. The owners just hold until they get an offer they are willing to accept. It’s not because people don’t care if they sell or not, but in the higher brackets there are few buyers. You have more people looking at the $2 million home than the $13 million home."
And people are selling in Alpine. In March, 58 homes were on the market, which Friedberg said was a record. Of those 58 homes, 20 had come down in price.
"We did feel the recession," she said. "A lot of people here were in the financial service industry. Also, doctors were hit by what’s going on in the health care industry, plus a lot of homeowners had other homes and didn’t live here year-round."
South of Los Angeles in Orange County, the rugged hills irregularly slouch right down to the shoreline. The combination of elevation and nearness to the ocean marks a number of high-end neighborhoods, including that of the Newport peninsula.
Although the topography may be different from Alpine, N.J., Orange County, Calif., was similar to New York-New Jersey in one regard: The economy was heavily dependent on financial services, as Orange County was the epicenter of the subprime mortgage market. The recession was particularly brutal to the area and that included the pricey Newport Beach market.
"We were definitely affected by the recession and we are still seeing it," said Andy Stavros, a broker-associate with Teles Properties in Newport Beach. "The peak year was probably 2007 and since then the average home price on the peninsula has dropped. On average, for what sold within the last year, prices were probably closer to $2 million."
The problem is a lack of demand. On average, inventory levels per month are approximately 45 to 70 homes, with only a few of them selling each month in that ocean-breeze-stoked area of Orange County.
One would think Newport Beach homeowners would be desperate to sell, but that’s not the case at all. From 2009 to 2010, a listed home in Newport Beach stayed on the market for an average of 137 days. From 2010 to 2011, a listed home remained on the market for 186 days.
Just as Sambucci’s research indicated, good times or bad times, high-end homeowners are just not going to be moved — until they are ready.