In the United States, it’s starting to feel as if there are two housing markets: one for the rich and one for everyone else.
Consider foreclosure-ravaged Detroit. In the historic Green Acres district, a haven for hipsters, a pristine, three-bedroom brick Tudor recently sold for $6,000 — about what a buyer would have paid during the Great Depression.
Yet just 24 kilometres away, in the posh suburban enclave of Birmingham, bidding wars are back. Multimillion-dollar mansions are selling quickly. Sales this August were up 21 per cent from the previous year. The country club has ended its stealth discounts on new memberships. And Main Street’s retail storefronts are full.
“We’re getting more showings, more offers and more sales,” says Ronni Keating, a real estate agent with Sotheby’s International.
Think of this housing market as bipolar. In the luxury sector, the recession is a memory and sales and prices are rising. But everywhere else, the market is moving sideways or getting worse.
In the housing market inhabited by most Americans, prices have fallen 30 per cent or more since the peak in 2007. That’s a steeper decline than during the Depression. Some people have had their homes on the market for a year without a single offer.
Almost a quarter of American homeowners owe more on their houses than they’re worth. Another quarter have less than 20 per cent equity. About half of homeowners couldn’t get a mortgage if they applied today, says Paul Dales, senior U.S. economist for Capital Economics.
Then there is the other housing market, occupied by 1.5 per cent of the U.S. population, according to Zillow.com. The one with outdoor kitchens and in-home spas; with his-and-her boudoirs and closets the size of starter houses. The one that is not local but global, with international buyers bidding in all cash. And where the gyrations of the stock market are cause for conversation, not cutting expenses.
In this land of luxury properties, the Great Recession seems over. Prices of $1-million-plus properties have risen 0.7 per cent since February, according to Zillow. Prices of houses under $1 million have fallen more than 1.5 per cent.
Normally, these two segments of the housing market rise and fall together.
“Luxury is the best-performing segment of the housing market right now,” says Zillow.com chief economist Stan Humphries.
After every recession since Second World War, housing has led the economic recovery, until now. The renewed vitality in the comparatively small market for luxury homes is not enough to power a full-blown recovery. This bifurcation in the market is yet another reason Michelle Meyer, the chief economist at Bank of America Merrill Lynch, says her housing outlook is “increasingly downbeat.”
The phenomenon is not limited to real estate. You can see the same split in other gauges of the economy. Sales at Saks versus Walmart. Pay on Wall Street versus Main Street. Corporate profits versus family balance sheets.
The divide is also making credit a perk of the rich. Mortgage rates are the lowest in decades, but what good are cheap rates if you can’t get a mortgage? The banks aren’t granting credit to anyone “who even has a smudge on their application,” says Jonathan Miller, founder of real estate consulting firm Miller Samuel. Applications for new mortgages are at 10-year lows.
Across the country, prices on high-end homes fell after the subprime crash in the fall of 2008. The price on the $25 million mansion became $20 million, then $15 million. Such “bargains” are pushing more luxury buyers to commit to more deals.
There are other factors, too. In Detroit, a recovering auto industry is helping propel high-end sales. All those car executives who have helped turn around the American auto industry used to rent. Now they are using their performance bonuses to buy homes.
Wall Street’s recovery has brought back the market for mansions in the Hamptons, on Long Island, where the number of closings has returned to the 2007 level, and for luxury co-ops in New York City. Because of social-network riches in Silicon Valley, twice as many homes have sold for $5 million or more this year as last.
But in the other housing market, an apartment tower built in 2007 in San Jose, Calif., recently converted to all-rental. The building had not sold a single unit. In Miami, a city that exemplifies the foreclosure epidemic, idled cranes dot the skyline. Unemployment shot up again this summer from 12 per cent to 14 per cent, a level not seen since the energy crisis in 1973. There are so many two-bedroom condos in gated communities with golf courses, private pools and rustic jogging paths that you can pick one up for $25,000, 66 per cent off the price five years ago. But luxury condos priced at $1 million or more are selling as rapidly as they did during the boom.
“In the 20 years that I have been in South Florida real estate, I have never seen a greater divide between those who have and those who have not,” says Peter Zalewski, founder of the real estate firm Condo Vultures.
One big factor in the divide is foreign cash, at least in the world of property. For international buyers, U.S. real estate is the new undervalued asset, and they are big buyers of luxury properties. International clients bought $82 billion worth of U.S. residential real estate last year, up from $66 billion in 2009. In states like Florida, international buyers account for a third of purchases, up from 10 per cent in 2007.
- Housing market is terrific, if you are rich (usatoday.com)
- Two housing markets: rich and everyone else (seattletimes.nwsource.com)
- In the U.S., two housing markets and two directions (seattletimes.nwsource.com)
- GREAT NEWS: Luxury Real Estate on the Road to Recovery (realestatebrowser.wordpress.com)
- Housing Market Split Between Very Rich And Everyone Else (huffingtonpost.com)