Why might Americans be interested in the most expensive homes?

Here is one segment of the housing market that is again doing well:

Sale prices of luxury homes in the second quarter of this year were up 7.5 percent from a year ago, the first time luxury gains have outpaced the rest of the market since 2014, according to Redfin, a real estate brokerage which defines luxury as the top 5 percent of the most expensive homes sold in each city in each quarter.

While some point to the recent runup in the stock market, the real reason for the luxury recovery may be a shift in the mind of sellers. They were asking too much, and now that they’re asking less, there is more action in the market, in turn boosting prices again…

Luxury home sales have been rising steadily, causing the supply of those homes for sale to drop. Sales of homes priced above $1 million jumped 19 percent in June compared with a year ago, according to the National Association of Realtors. That was a much larger sales gain than in any of the lower price points.

The sales surge has caused a decline in the supply of luxury homes. Listings at or above $1 million fell 9.4 percent compared with the same period last year, according to Redfin. Those priced at or above $5 million were down about the same. This after five consecutive quarters of double-digit inventory growth.

This change in the luxury market is unlikely to help many Americans though a number of these expensive properties get a lot of media attention. Come to think of it, what exactly is the purpose of media outlets regularly showing expensive homes? Here are a few options:

  1. This could be the curiosity of the masses regarding the practices of the wealthy. How does the other half (or top 10%) live?
  2. Or, is it intended as a critique of the well-resourced by holding up their lavishness up for public display? Look at those wealthy people with their ostentatious homes.
  3. Alternatively, might it encourage class conflict and social change since these expensive homes are out of reach of most Americans? For the many Americans who struggle to find decent housing, highlighting the luxury of the wealthy might serve as a reminder of the distance between groups.
  4. At the least, such regular stories might display the important place real estate and homeownership play in American wealth. It is one thing to own financial instruments but another to purchase more tangible items like property and housing.

This all might be different if the housing market as a whole was booming, particularly if the lower end of the market with smaller homes or starter houses was growing. I suppose this could be a research question: during periods of rising economic boats for all (such as the several decades after World War II), are there fewer media stories on homes and properties of the wealthy compared to homes for the average person?

Toll Brothers still claiming they are not building McMansions

Few people want to claim the McMansion as their own. In particular, one of the noted national builders of large homes continues to say they do not build McMansions:

“We’re not seeing any reduction in the size of homes people want,” Tim Gehman, Toll Brothers’ director of design, told Business Insider. “The sizes of homes are back to pre-downturn dimensions, and sales are booming.”…

Toll Brothers is quick to dismiss the idea that Henley homes — or any of its other luxury home models, for that matter — are McMansions.

“It has to do with proportions. Is it just the same house with a lot more space in it, or is it more smartly designed with more rooms?” Gehman said. “We pride ourselves on the quality of the design, the livability, and the attractiveness of a home. We don’t want to be so devoid of what has been historical in any particular region just to get square footage. It’s important that it lives in its environment well.”

He added: “No one likes McMansions, ever, but a well-appointed luxury home, on the other hand, is still very popular. Our buyers are savvy buyers. As much as they have different tastes, they also know that they’re buying a commodity, and they’re investing in it. Until the market in general changes its point of view on what is valuable, most are not likely to spend on what they think won’t return value.”

Two quick thoughts:

  1. I get that they don’t want to associate themselves with McMansions. But, the explanation above seems forced. What exactly is the difference between a McMansion and “a well-appointed luxury home”? To the outside observer, not much. To the careful brand protector, everything.
  2. Toll Brothers has received a lot of press in recent decades regarding McMansions. Are they the worst offenders or just the biggest builder out there? Who else is building these homes – a bunch of regional builders? I have seen little about how all those McMansions were constructed without Toll Brothers invoked.

Arms race among new luxury apartments includes live-in musicians

If you have the resources, you have some options in shopping for a nice new apartment including a building musician:

Amenities for high rise buildings are generally culled from a well-honed list of known popular offerings—a lounge, gym, a pool, an outdoor deck, and grilling stations wouldn’t really lead anyone to blink an eyelash. Being LEED certified is often expected.

At the 34-story, 298-unit Exhibit on Superior, amenities for the studio, convertible, and 1 to 3-bedroom units include those, as well as keyless entry with smartphone integration, stainless steel appliances, in-unit washer and dryer and more. Quite nice—but the downtown luxury apartment market glut has led to an arms race to attract new residents and keep rents from being slashed.

And even though the price point is comparably lower (and the floor plans are comparably smaller) than other neighborhood offerings to attract a younger demographic, developer Magellan Development Group and MAC Management wanted to bring some artistry and magic to their building (and to their other properties, if this catches on). Here’s the idea.

A contest is open for the best acoustic guitarist and vocalist to live and play for one year at Exhibit on Superior. The winning musician gets free rent at an unfurnished studio for a year, the title of Musician in Residence, and the chance to hone their skills while playing against any number of cool nooks and spaces in the bKL Architecture-designed building. The residents get in-house live entertainment and bragging rights to live in a building with the first so-called Exhibit A-Lister.

My first thought was that sounds like the arms race among colleges to provide amenities for prospective students ranging from excellent food, state of the art gyms, and private and luxurious dorms. Then it hit me: these luxury apartment buildings may be going after that same demographic: college graduates who want the excitement of the city. If we could narrow it even more, perhaps they are employed in a creative industry or field.

After thinking this through a bit, it is clever to pair residential real estate with music. We might expect something like this in commercial spaces or privately-owned property that is trying to operate like public space (perhaps a park like area outside a major office building). But, this continues the trend of some of the other “weapons” in this residential arms race: providing building amenities that encourage sociability while simultaneously offering well-appointed private units. Let’s hope all the residents like the acoustic guitar scene…

Sales of luxury homes continue to slump

Several new reports suggest the luxury housing market is not doing so well:

Sales in the Hamptons, Aspen and Los Angeles fell by double-digit percentages in the fourth quarter, as the supply of unsold homes grew and prices came under pressure, according to market reports Douglas Elliman and Miller Samuel Real Estate Appraisers & Consultants.

Separate research from Redfin found that luxury properties nationwide under-performed the broader housing market for the eighth consecutive quarter. The supply of homes priced at $1 million or more rose 1 percent in the fourth quarter, while the number of $5 million-plus homes was up 15 percent.

The article starts with the suggestion that the election limited sales. But, that doesn’t do much to explain the issues over eight quarters. Perhaps there is a bit of a luxury home bubble? I mean, how many multi-million dollar properties can be bought and sold? I also feel like I have seen numerous news stories in recent years about the latest home that is breaking the record for asking price. But, such homes are only within reach of the wealthiest people.

It would be interesting to hear what experts think this slump means. Builders shifting away from super expensive homes to cheaper homes? The wealthy looking to invest in other kinds of real estate? Any problems with vacant properties in these communities?

CNBC: owning a home may be “the new luxury item”

CNBC suggests the dream of owning a home is becoming less attainable:

Almost half of those people who don’t own a home said their financial situation is standing in the way, according to a report by Bankrate.com released Tuesday. Additionally, 29 percent said they can’t afford a down payment and 16 percent said their credit isn’t good enough to qualify for a mortgage…

“A lot of people could be feeling traumatized by what happened to the housing market and are counting themselves out,” she said…

These days, first-time homebuyers, who are primarily in their 30s, are spending a bigger chunk of their incomes to buy their first house — coughing up about 2.6 times their annual pay; in the 1970s, first-time homebuyers purchased homes that cost only about 1.7 times their yearly salary, according to Zillow.

Tighter lending standards and hefty down payments have further deterred some buyers.

Economic conditions and reasoning can go a long ways to determining who can access parts of the American Dream and when they may do so in life. This reminds me of other analyses I’ve seen in recent years suggesting the delayed age for marriage as well as a decline in marriage is also tied to economics: people want to be more financially secure before they marry. Similarly, buying a home is now being put off – not because Americans don’t want it but because they just aren’t set and the conditions have imposed particular restrictions.

Selling mansions with a luxury experience

The arms race to sell more real estate – from live-in managers to personal notes – now includes creating luxury experiences in expensive homes for sale:

Before entering through a Casey Key mansion’s arched doors to attend a “VIP reception” to spur a sale in November, guests first had to navigate their way through a jaw-dropping array of luxury automobiles — Lamborghini, Bentley, Rolls-Royce, Porsche, Mercedes-Benz and a reproduction 1936 Auburn Boattail Speedster — parked in the 6,600-square-foot home’s motor court.

A few weeks later — and also on Casey Key — guests at a 10,000-square-foot, $15 million mansion for sale were greeted by Saks Fifth Avenue models who offered perfumes and skin care products in the oversized master bathroom.

In the Sarasota Ranch Club recently, a chef displayed his skills in the enormous kitchen of a 7,200-square-foot, $2.6 million listing…

Often, such events top $5,000 to run, or about 10 percent of a typical $50,000 marketing budget for a waterfront mansion priced at $10 million or more.

While I’m sure this creates some buzz – and it seems everyone likes buzz these days – it seems like it would help people envision how the house could be used. If a primary motivator of buying a big home is to impress people (this is what critics of McMansions argue), actually seeing the home put to that use could go a long way.

Interestingly, the article hints that this strategy works but there are no hard numbers about how effective this is. If this strategy wasn’t used as much for a while, why is it returning now? I wonder if this is particularly prone to the overall state of the economy: if things are generally going well, these sorts of events look okay but in lean times, they look garish and suggest the wealthy are rubbing it in.

Odd final thought: could someone become a real estate party crasher if they know where these events are happening? Do you have to be vetted (income, wealth, credit, etc.) to be invited to such an event?

Want a home with extra amenities? Just buy a condo with hotel services

Developers are building more condos with hotel amenities:

Developers across the U.S. are reviving a concept that collapsed with the real estate crash in 2008: combining condominiums and hotels. In cities including Miami, New York and Los Angeles, a rebounding hospitality market is joining with rising demand for luxury homes, spurring developers to construct new full-service hotels and ask premium prices for residential units associated with a high-end brand…

“I love the amenities the building will have — a restaurant that can provide room service, a concierge, maintenance, a person that can clean your place, valet parking,” said Viete, 25, who works for his family’s real estate company in Caracas. The $250 million project, scheduled to break ground in August, is already 85 percent sold…

Condo developments with a hotel can be structured in several ways. In some cases, residences may be connected to the lodging segment only so that owners can take advantage of the hotel’s amenities and benefit from the brand’s prestige. That tends to put a premium on unit prices.

In other developments, known as condo-hotels, a portion of the condos are made available to the hotel when owners aren’t using them, producing revenue for residents.

Sounds nice if you have some extra money lying around. On one hand, the story doesn’t say how much extra such units would cost over and above condos available elsewhere but on the other hand, if you have to ask, this isn’t the market for you…

Thinking about these units, they are an interesting contrast to a common American narrative about homeownership that goes something like this: you work hard to put together enough to purchase a home, you work hard to maintain it, you are more likely to participate in local community life, and it is a long-term investment and place for sentimental moments. Yet, the housing options available to those with more money goes against these principles. Instead of putting sweat equity into maintaining the home, you can pay someone else. Instead of getting deeply involved with neighbors and local issues, the wealthy can travel from house to house in exciting locations. Instead of holding onto a home because of family life and memories, housing becomes just another commodity to be bought and sold. In other words, condos with hotel features are far beyond normal American conceptions of homeownership.