Market for high-end homes falters,
By Thomas A. Fogarty, USA TODAY
usatoday.com
As most of the housing market hums, the high end sputters.
Wanda Jones, 44-year-old mother of five, has tried since January to sell her six-bedroom house in Houston. She's had plenty of lookers but no takers despite slashing $250,000 from her original asking price of $1.65 million.
Wanda Jones dropped her asking price to $1.4 million for this home in Houston.
By Paul S. Howell for USA TODAY
Her west-side neighborhood has a 14-month supply of homes on the market in the $1 million to $2 million range and nearly a three-year supply at $2 million-plus.
"People just don't have the cash," Jones says.
It's a common tale. High-end home sellers in Boston, Atlanta, Denver and Seattle can expect to wait months, maybe years, before snagging a buyer. Even the perennially hot, expensive markets like San Francisco, Manhattan and Aspen, Colo., are seeing squishiness at the top.
What is a high-end home?
It depends where you live:
Boston $1 million +
Houston $1 million +
Seattle $750,000+
Atlanta $500,000+
Denver $500,000+
Source: USA TODAY research
The definition of high-end varies place to place, but snapshots of conditions in major cities bear striking similarities: The market for starter and move-up homes remains solid, propped up by record-low interest rates. But cash is king at the high end, and that insulates the luxury market from interest rate swings. A glut of luxury homes for sale has put a damper on high-end prices. It's also causing stomach-churning waits as some sellers put their lives on hold awaiting an offer.
Says Miriam Coca, who's had no lookers since putting her Evergreen, Colo., home on the market in July for $800,000: "I get completely squirrelly."
High-end prices have flattened, says Katherine August-deWilde, a First Republic Bank executive whose firm tracks luxury home markets in New York and California. Continued executive layoffs and a further influx of expensive homes for sale could push prices down, she says. But she doesn't view luxury homes as a market on the brink of collapse. She sees no evidence of distressed selling, and high-end owners with mortgages are making payments, she says.
Buyers are being cautious, she says, but most high-end sellers have the means to wait for their price. The sellers themselves report that shoppers seem slower to jump on a house because of uncertainty about the economy, war and terrorism.
Michael McDermott, 55, a retired truck insurance executive, has tried for three months to sell his 10,000-square-foot house in Irving, Texas. He's asking a hair less than its $1.7 million appraisal. McDermott says his only promising prospect vanished after expressing concern about the direction of the economy.
McDermott, who wants to move his family to the country, doesn't blame the potential buyer for getting spooked. Says McDermott: "We're all holding our breath until the next 9/11 occurs. God knows what will happen to the economy when it does."
Empty-nester Grant Sharp, a transportation broker, expected to have little trouble getting at auction the $950,000 appraised value for his sprawling home in suburban Atlanta. He estimates 100 groups visited during the two-week open house leading up to bidding. On auction day, Sept. 5, only one qualified buyer registered. Rather than selling the house for the minimum asking price of $650,000, Sharp canceled the auction. If the market improves in 2003, he'll try again.
Says Sharp: "It was a huge letdown. People who normally would love a place like this just aren't looking to buy." Sharp blames weak corporate profits and the devaluation they've caused for bonuses and stock options.
Baby boomers move on
Bill Kiley, president of Boston-based Coldwell Banker Residential Brokerage, sees demographics behind the 30% increase this year in $1 million-plus homes available for sale in his market.
"Those of us in the baby boom generation are no longer staying in the primary residence until going to the nursing home. We're getting rid of it," says Kiley, 56.
Because prices for now remain strong, Kiley says many clients see it as the ideal time to cash out of big houses. Many plan to acquire two smaller properties, typically a city condo and a vacation home.
Real estate experts say stock market turbulence cuts two ways at the high end. The 31-month stock price decline has caused the stock market's much discussed "wealth effect" of the late '90s to vanish, quelling demand for mansions. But as the bear market wears on, real estate increasingly seems to be a safer place than securities to sock away remaining wealth, offering some support for prices.
Like millions of Americans, Margie Phillips of Houston has seen her stock portfolio smashed and plans to make real estate her main vehicle for investing.
A month ago, she put her family's 66-year-old house on the market for $1.58 million. Phillips says she wants to pay cash for a smaller house, fix it up and sell it, just as she's doing with the current home.
She knows she's not in for the same kind of reception from buyers as a few years ago, when she sold a house on the same street in one day without paying a realty commission. She's prepared for a long wait and may in a few months decide to rent the house while waiting for her price. "I'm sitting on a gold mine, and I don't need to give it away," she says.
Anecdotal reports of a slackening high-end market abound:
Manhattan. Average sale time at the top of the market is 163 days and growing, says appraiser Jonathan Miller of Miller Samuel. Average time a year ago: 122 days.
Aspen. Broker Sandye Whitaker says 700 properties are for sale in the exclusive mountain community, up 200 from a year ago. "We're on a bit of a hold now to see what's happening with the economy," she says. One fortunate seller this year: former Enron CEO Ken Lay, who received his $10 million asking price almost as soon as his place went on the market.
Atlanta. The number of unsold houses in Atlanta is growing, and the growth is fastest at the high end, says Rajeev Dhawan, a Georgia State University economist. The city's supply of homes priced at $500,000 and higher has grown to 21 months, vs. 16 months two years ago. Dhawan cites the downturn in tourism, technology and travel.
Seattle. Glenn Crellin, a real estate expert at Washington State University, is seeing "a noticeable" increase in the number of Seattle homes listed at $750,000 or higher. "It's going to take more time for those properties to sell, and it's certainly going to mean some discounting by sellers," Crellin says.
Denver. Realty agent Les Pfenning rates the $500,000-plus market as "really soft." In nearby Boulder, Dan Conley is asking $610,000 for a log house that earlier this year he judged to be worth $75,000 more. "Back in February, we were told it would sell in no time, but then reality set in," says Conley, whose move to a small Colorado mountain town is on hold.
Lessons from Houston
Houston's market typifies the broader pattern.
Buyer's realty agent Judy Thompson says the local market breaks cleanly into two parts — a buyer's market over $1 million; a seller's market at lower prices.
Until the high end started to cool earlier this year, she says, her high-end clients had to be "first, second or third to see a place or be left out." Thompson attributes the change partly to a decline in the number of executives being transferred to Houston, the result of corporate belt-tightening.
The collapse of Enron hasn't helped. Accounting manipulation last year drove the hometown energy giant into bankruptcy protection and made its stock nearly worthless. The debacle crushed some Houstonians financially and severely diminished the stock portfolios of many more.
Real estate investor Lane Clark believes Enron's dampening effect is partly to blame for the trouble he had selling a Tanglewood neighborhood mansion he began building 18 months ago. He put it on the market earlier this year, expecting it to sell quickly for $2.5 million. It took six months to find a buyer, and he had to drop his price by $300,000. Clark says his thin profit doesn't justify the risk he took. His next spec house will be priced at $1 million or less, he says.
Some high-end sellers haven't waited for a buyer and are now making payments on two expensive properties. Barry Chalfin and his wife, Rhonda Lenair, are paying on their $1.28 million country estate in Newbury, Mass., and on acreage in Vermont, where they plan to move soon. Chalfin says they're prepared for a long period of double payments. The estate is both a residence and clinic for the couple's New Age addiction-therapy practice. "The person who buys this won't be looking for a cookie-cutter place in the suburbs," says Chalfin, who expects to spend a year or more waiting for a buyer.
Software executive Bruce McConnell wanted to reduce his commuting time, so in June, he put his Newton, Mass., home on the market for $865,000. He borrowed against his equity for a down payment on a place near his work in Nashua, N.H. Distractions of the move caused him to temporarily take the Newton house off the market, but recently he began offering it again at $35,000 less. Four columns of ads for comparable homes in his Sunday newspaper, vs. two columns in June signaled a price reduction was in order, McConnell says.
So how difficult are double payments? "Talk to me in December," he says, laughing.
Widespread panic selling is not yet evident at the high end, realty analysts say. Banker August-deWilde says not one loan in First Republic's portfolio of jumbo mortgages is delinquent or in foreclosure. Real estate information firm DataQuick is tracking a low rate of distress among high-end borrowers, says analyst John Karevoll.
August-deWilde says potential buyers awaiting a fire-sale price may be disappointed. High-end buyers tend to make large down payments or pay cash for their homes. That means when they want to sell, most can be patient.
And even sellers who leveraged their way into big houses have seen equity skyrocket in recent years. Says Kiley, the Boston broker: "It wouldn't be unusual that they're sitting on a $5 million house that they paid $700,000 for." |
