It was the best of times, it was the not-so-best of times. Christie’s annual Luxury Home Market Report has many interesting insights into the global luxury market and how, in many ways, it operates on another plane, divorced from the broader real estate marketplace. While this should be unsurprising, the wealthy seem to always be on a different plane, there are some interesting insights. Think of the following as a good, old-fashioned book report.
The luxury home market does not follow the ups and downs of the pedestrian real estate market. Instead, the world of trophy homes more closely tracks with the fine art, jewelry and other luxury goods markets. When Ferrari’s are flying off the shelves, so are trophy homes. One of the main reasons for this is that luxury home owners, unlike you and me, buy and sell property for different reasons and often without the need to sell. “Yawwwn, this house is a bore” is less likely to be acted upon by the rank and file homeowner. We mostly buy and sell for concrete life events like kids, job relocations and job losses. The difference between wanting to sell versus having to sell.
For example, in 2016, Christie’s reported that luxury home sales globally had increased just one percent, the same amount luxury goods sales increased also. Factoring out the Chinese, the one percent luxury goods increase flipped to a two percent decline. Removing the Chinese element from luxury home sales globally and a similar decline would be seen.
Highlighting the enormous income inequality gap, when the world exited from Recession, the wealthy got most of the juice. This explains why in 2014, the number of luxury home sales jumped 16 percent worldwide. Global uncertainty has an outsize impact on luxury sales too, which explains why in 2015 the growth had dropped to eight percent before collapsing to just one percent growth in 2016. Brexit, terrorism and the US election all played a part in stoking uncertainty.
Before you think this is a political riff, apparently regardless of the outcome, every US presidential election instills uncertainty in the luxury market. It’s less about who wins and loses, it’s about the uncertainty of not knowing. In secondary housing markets, uncertainty really drops the hammer because second homes are about choice, they don’t have to be there. In fact, luxury secondary home markets went from a 24 percent gain in 2014 to a seven percent decline in 2016 … a 31 point shift in two years. (Again, interesting.)
Financing and Selling
Many think that in the rarified air of luxury housing that most pay cash. After all, you can’t deduct mortgage interest on loans over $1 million. But the wealthy have other options. In 2015, 44 percent of luxury home buyers paid cash. In 2016, this dropped to 36 percent. Why? The gains available in other investments were greater than globally low mortgage interest levels (some markets are reporting negative interest rates). The wealthy used cash to invest rather than park it in a fixed asset (home). Apparently this is common in the fine art world as well. We all saw the recent sale of a Jean-Michel Basquiat painting for $111 million, apparently it’s not uncommon for these buyers to mortgage the art to finance other parts of their lives. Unfortunately, mortgaging Mom’s “rare” Beanie Babies doesn’t generate the same perk.
Because luxury homes aren’t generally bought and sold out of need, sellers can afford to wait for their price. While prices were up 16 percent in 2015, the average home spent 254 days waiting for the right buyer. That dipped to 195 days in 2015 before rebounding to 220 days in 2016. Compare that with a $400,000 house that might fly off the shelf the weekend it’s listed.
And just like the rest of the market, when a seller gets cocky on price, a reduction is inevitable. As the luxury market has slowed in price and time to sell, the difference between the listing and selling price is widening. As you can see in the chart above, the more expensive the home, the wider the gap between list and sale price.
In Dallas, we all remember the 2013 fanfare of the $135 million listing of the Crespi-Hicks Walnut Place estate. We watched as it dropped to $100 million in 2015 before finally selling to Andy Beal for an undisclosed sum rumored to be well below $100 million. While I do not know the final price, we all saw the home placed back on the market in January 2017 for $48.9 million, barely a year after purchasing it. If we believe that Beal isn’t losing his shirt with this flip, he purchased the home somewhere near 36 percent of the original $135 million asking price, a whopping 64 percent delta.
What are the most expensive luxury cities in the world? The top 10 and their respective jostling over the past five years are listed above. Hong Kong’s story is boggling. The most expensive luxury home sale in 2016 was a $270 million, 9,212-square-foot home atop Victoria Peak. Not to be outdone, in 2017, the manufacturer of two-thirds of iPhone screens plonked down $361 million for an 8-unit apartment building its new owners plan to demolish and replace with a single family home. It too is located on top of Hong Kong’s Victoria Peak. In fact, the three most expensive sales recorded in 2017 so far have been in Hong Kong. All three are on Victoria Peak and sold for $361 million, $140 million, and $93 million. While the first US entry clocked in at No. 4 with a Palm Beach estate nabbing $85 million, eight of the top 14 sales were in the US. Four were in Hong Kong with one each in Sydney and Monte Carlo.
In the market for a $100 million-plus home? There are currently 33 listed for sale globally, none in Texas. But if someone wants to get Dallas on the list, I’ll happily sell them my home for $1 more than the lowest-priced “Top 15” 2017 sale. That’s just the kind of team player I am.
Remember: High-rises, HOAs and renovation are my beat. But I also appreciate modern and historical architecture balanced against the YIMBY movement. If you’re interested in hosting a Candysdirt.com Staff Meeting event, I’m your guy. In 2016, my writing was recognized with Bronze and Silver awards from the National Association of Real Estate Editors. Have a story to tell or a marriage proposal to make? Shoot me an email firstname.lastname@example.org.