For a while it seemed that luxury homes were immune to the effects of the declining housing market, but as of late, they too are showing signs of feeling the pinch.
High end neighborhoods in Northern California such as Los Gatos, Saratoga and San Jose have seen price reductions up to 50%, and poor sales to boot. Sales of homes valued at $500,000 or more in Houston are down 40% from 2008. A $1 million home here may now be reduced by 8 %.
Seemingly with no rhyme or reason, other upscale neighborhoods are closing deals within 40 days with only slight price decreases. The neighborhood of Redwood City, a suburb of San Francisco, is one such example. Home prices are down 15%, but listings are remaining on the market an average of only 40 days.
Why is this area doing so well, when other Northern California communities are struggling? The median price in Redwood City is about $1.07 million. This is high by most standards, but much lower than the neighboring Atherton and Burlingame. The average annual wage in Redwood City is $73,000 a year, where in Atherton, only two miles away, wages are closer to $200,000. These high earners, who may have savings set aside, are in a better position to wait for their price than others who need to sell their home quickly, even if it means negotiating a lower price.
Other fast moving upscale areas as reported by Forbes.com are Oakland, CA, Woodmere, N.Y., Coral Gables, FL, Palo Alto, CA, and Great Neck, NY. The average luxury home on the market averages 115 days, but these have been selling in about 66 days.
This growth spurt in high end real estate is not restricted to the U.S. In Victoria, British Columbia, Canada, luxury home sales increased 63% from January to February 2009, and a subsequent 50% from February to March. This far exceeds the normal increase at this time of year. The majority of the sales were in the $600,000 price range, but a few over $1 million. Although buyers are requesting second and third showings for properties exceeding $2 million, they seem to be waiting, perhaps for another price drop in the market.
Another possible reason these homes are doing better is due to the declining competition for similar listings. At one time the market was flooded with upscale properties for sale, now those who don't have to sell are removing their listings, and giving buyers less to choose from. In addition, the low number of days on the market also represents the number of days a home is listed, and its removal does not necessarily mean the house was sold. The owners may have chosen to remove the listing rather than settling for a price cut.
The accessibility and reduction of interest rates on jumbo loans (over $729,750), is also making it easier for buyers to finance big ticket houses. Jonathon Miller, President of Miller Samuel, a Manhattan appraisal firm, says "With a 20% down payment, a $915,000 home fits within the $729,750 Federal Housing Administration loan limit." Now with rates hovering in the upper 5% for a 30-year term, they're providing buyers with a much needed incentive.
In the next few months it's expected that there will be further price cuts on luxury homes, which will undoubtedly stimulate sales in this upscale niche market.
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