Million-Dollar Home Sales Thrive While Low End Stumbles
Luxury-home sales are climbing as an improving economy and stocks that have almost tripled from 2009 lows bolster confidence among affluent buyers. At the same time, slow wage Photographer: Emile Wamsteker/Bloomberg
Million-dollar homes in the U.S. are selling at double their historical average while middle-class property demand stumbles, showing that the housing recovery is mirroring America’s wealth divide.
Purchases costing $1 million or more rose 7.8 percent in March from a year earlier, according to data released last week by the National Association of Realtors. Transactions for $250,000 or less, which represent almost two-thirds of the market, plunged 12 percent in the period as house hunters found few available homes in that price range.
Luxury-home sales are climbing as an improving economy and stocks that have almost tripled from 2009 lows bolster confidence among affluent buyers. At the same time, slow wage growth, tight credit standards and escalating prices are putting homeownership out of reach for many Americans. While investors drain the market of lower-end properties, builders are constructing more expensive houses that generate bigger profits.
“The real estate market is the ultimate reflection of confidence, wealth and income,” said Sam Khater, deputy chief economist at Irvine, California-based CoreLogic Inc. “The same factors driving the income stagnation in the middle are driving the income momentum at the top.”
Million-dollar-plus homes made up 2 percent of deals in February, about the same proportion as in 2008, before credit markets collapsed and drove down the share to the historical average of about 1 percent, according to Khater.
An analysis by DataQuick of 25 of the top U.S. metropolitan areas for multimillion-dollar sales showed purchases for $2 million or more jumped 33 percent in January and February from a year earlier. The 2,129 transactions were the most for the two-month period in the research firm’s data going back to 1988.
A U.S. price record for a single-family home was set last month with the $120 million sale of a waterfront mansion on 50 acres (20 hectares) in Greenwich, Connecticut, according to Christie’s International Real Estate. The New York-based brokerage marketed the property, known as Copper Beech Farm, to international buyers.
While demand from the super-rich began to rebound in 2012, with investors from countries such as China and Russia scooping up the most expensive U.S. homes, the lower end of the luxury market has surged in the past year, according to Bonnie Stone Sellers, chief executive officer of Christie’s International. Purchases have picked up as the economy improved and banks increased lending to higher-income borrowers, she said.
Loan applications rose in February for home purchases of $500,000 or more while declining for all other levels, according to the Mortgage Bankers Association. In April, the average loan size for purchases climbed to $280,000, the highest in figures dating to 1990, the trade group said.
“The luxury markets are on fire,” Sellers said in a telephone interview. “The trends in luxury housing are similar to trends in other luxury goods. Whether you’re buying a third home in Manhattan as a pied-a-terre or another Picasso, these are acquisitions of passion, of lifestyle and of experience.”
Purchases of getaway homes are also climbing. Vacation properties made up 13 percent of transactions in 2013, the largest share in seven years, the National Association of Realtors said last month.
In New York’s Hamptons, the summer playground for financiers and celebrities, home sales in the first quarter jumped 52 percent from a year earlier, according to a report by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. The median price rose 19 percent to $880,000, fueled in part by higher Wall Street bonuses.
Gary Wasserman, CEO of Troy, Michigan-based Allied Metals Corp., is considering selling two homes in Florida — one in Naples and another in Miami Beach — to take advantage of rising prices in the area. He’s also buying a 5,000-square-foot (465-square-meter) condominium in a project under construction in Miami’s Coconut Grove section.
Wasserman declined to say how much he’s paying for the apartment in Grove at Grand Bay. Prices for similar units range from $4.4 million to $7.2 million, according to Philip Freedman, sales manager for the dual-tower development. Plans call for 12-foot (3.7-meter) ceilings, rooftop pools, an onsite chef and butler service.
“The stock market is very strong and this is a way to monetize and concretize some gains,” said Wasserman, 64. “We had quite a shock to our collective confidence in 2008 and 2009. The resurgence of the economy has underscored for us that this country remains a very strong place and that the future remains strong.”
The U.S. economy expanded 1.9 percent in 2013 and 2.8 percent the prior year. Employers boosted payrolls in April by the most in two years and the unemployment rate fell to 6.3 percent from 6.7 percent, Labor Department figures showed today.
While the Commerce Department reported this week that gross domestic product grew at only a 0.1 percent annualized rate in the first three months of 2014, gains in retail sales, employment and manufacturing at the end of the quarter indicate the setback will be temporary.
The Standard & Poor’s 500 Index jumped 30 percent last year, the most since 1997. Since its 2009 low, the benchmark gauge has increased almost 180 percent to a record high.
While the real estate crash hit homeowners of all income levels, the affluent have more of their money in other investments, according to Richard Fry, senior economist at the Pew Research Center in Washington.
The average wealth for households with a net worth of $500,000 or more jumped 21 percent from 2009 to 2011, the first two years of the economic recovery, Fry said. It declined 5 percent for everybody else. The top 13 percent of households own all corporate and municipal bonds, 92 percent of the value of directly-held stocks and 69 percent of the wealth in 401(k) funds, according to Fry’s analysis of Census Bureau data.
“We see a rising wealth pie but the gains were unequal,” he said. “This makes sense because for the typical American household, most of their wealth is in their homes.”
Lenders courting business from affluent borrowers are charging less for bigger loans. The rate at Wells Fargo & Co. (WFC) for jumbo mortgages of at least $729,000 — those too big for backing by government programs — was 4.13 percent yesterday, compared with 4.38 percent for a conventional 30-year fixed loan.
The Federal Housing Administration, the biggest source of financing for first-time buyers, has raised the cost of borrowing and tightened underwriting to cope with losses on mortgages it insured before the crash. The number of FHA borrowers purchasing their first homes declined 38 percent last year from the 2010 peak.
Read full article at Bloomberg.com
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