By Danielle Reed
In a Surprise for Luxury Sellers, Prices are Down, Not Up; Near Denver, a 35% Decline
For Bob Lodie, the news was tough to swallow. Living in real-estate rich Westport, Conn., he figured his $1.7 million home, with six bedrooms and a sweeping veranda, was a safe investment. But when he was forced to sell it last year, not only did he not make a profit -- he wound up taking a $150,000 loss.
"I couldn't believe I took the hit," says the motivational speaker. "It was disappointing."
If you're wondering how home values are holding up, there may be some bad news on the horizon. According to a survey commissioned by Weekend Journal, luxury-home prices through the first half of 2003 are down in almost half of 50 major counties we looked at, including even the blue-chip suburbs of the Midwest and Connecticut's gold coast. At the economy's top, three years ago, that figure was only 8%. And with people buzzing about the recent rise in interest rates, some brokers are beginning to use the "D" word (that's decline) for the first time in years. "We peaked in 2001," says Jim Bodin, an agent who handles luxury homes for Coldwell Banker in Colorado.
Wealthy homeowners who bought before the real-estate boom, of course, still stand to make a profit. But brokers say signs of a luxury slump keep cropping up, with one Chicago agent saying his area suddenly has 200 big places for sale. New York's Hamptons is seeing a remarkable surplus of super-priced homes, too (more than a dozen are asking $20 million or more). Why the pileups? "No one has to buy a luxury home," says David Lereah, chief economist for the National Association of Realtors.
Overall, of course, home prices continue to buck the economy, rising 5.56% over the 12 months ending in June according to the federal government. Indeed, our survey found only two markets in which overall prices had dropped (sorry, Boulder, Colo.). But when it comes to luxury homes -- defined in our survey as those over 4,000 square feet -- prices have been on the downswing for a while, falling last year in almost a third of our markets, according to Fidelity National Information Solutions, which did the survey. For now, analysts say it's too early to tell how much the slowdown will trickle down the market, if at all.
Jolt For Buyers
Still, it comes as a bit of a jolt to people like Robin Brown, who paid $12 million for her 1852 townhouse in New York three years ago. Now she's got it on the market again -- for about $4 million less. "Wall Street went down," says Ms. Brown, who owns an upscale health club. "That's when it hits the high end." Among the other folks now facing a loss: everyone from Enron ex-Chairman Kenneth Lay (out $620,000 on the recent sale of a four-bedroom riverview home in Aspen) to Scott Rudin, producer of films like "The Hours." He paid $4.5 million for The Rocks, his 8,000-square foot Washington, Conn., place -- and just settled for $1.2 million less.
To be sure, reports of real estate's impending fall have been heard repeatedly lately -- from the post-Sept. 11 dip to the "bubble" debate last winter. And the recent uptick in interest rates has many experts predicting a slowdown this year, with higher rates driving down what people will spend. That could affect buyer confidence especially on the high end, say analysts, as folks start doubting whether they'll be able to trade up. "If those expectations change, you're going to have fewer motivated buyers," says David Dale-Johnson, of the University of Southern California's Lusk Center for Real Estate. color>
For our survey, FNIS compiled data from more than 15,000 publicly recorded upper-end sales in the past two years. To get more geographic spread, they defined luxury homes by size, rather than just price, using a minimum 4,000 square feet, or about double the median American home. Then they compared median prices so far this year (in most places with sales through the end of the second quarter), with the same time period in 2002 and 2001. For context they also looked at the overall market in each spot.