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The vast majority of us – myself included – do not sell or market ultra-luxury properties priced at $10 million or more daily. Living in an expensive city like New York, I’ve indeed been fortunate to sell several of these ultra-homes over my 25-year career, but the vast majority of homes I sell are priced below $10 million. COMPASS sells luxury and ultra-luxury…..lots of it. By many estimates, COMPASS is the fastest established globally recognized luxury real estate brand in history…..about 8 years!
While you may dismiss this segment as something completely removed from your focus, don’t under-estimate its power. Ultra-luxury has spread its wings outside the obvious traditional areas New York, Los Angeles, San Francisco, Miami/Palm Beach, Aspen, Greenwich, etc. Ultra Luxury is seen in dozens of other parts and growing. Here are some thoughts on this:1. Big fortunes are made throughout the year amongst people that can afford to buy these homes. Inheritance, lottery winners, etc are a few less obvious examples. Wealth is spreading around the US too.2. While your area may not even have $10 million homes, some who live in lower priced areas have exceptional wealth and buy in OTHER areas around the country. The association with COMPASS that sells these properties around the US via its superb group of agents may allow you to connect a client – or friend/family member/associate – to an agent.3. Everyone loves to dream. Many love reading about what the ultra-rich are doing, especially around their homes.4. A luxury brand always showcases the best of the best to fuel the brand for all the other products it sells at much lower prices. The vast majority of people who shop Hermes are not buying that $100,000 Alligator handbag! Many shop at Hermes BECAUSE they know it also sells that crazy-expensive bag…..5. Many agents wish to elevate their price-point. The easiest and cheapest way to do this is to become well versed on the subject and share your knowledge with your sphere.6. Don’t ever think selling an ultra luxury property is quick and/or easy. Most times they require extensive work, attention, time, care, discussion, communication, thought, patience….and money. This clientele is (rightfully) extremely demanding. Sometimes an ultra-luxe property can take years to sell. Buyers of these homes are often dismayed at how much less they get for their money than they had imagined. The volume of sales at this level is relatively tiny with a very, very small – equally demanding – audience.
Being aware of this market makes for interesting dialogue at the very least. Speaking intelligently about this arena can fuel others’ perception of you. Your association may be invaluable. Knowledge is power. Sharing knowledge is powerful marketing.
Should I Sell Now?
We are often asked the question: “Is this the best time to sell?” My answer is consistent, regardless of markets. “The answer is not simple. I need to know LOTS more.”
Yes, there may be times when the market is a super-hot seller’s market. But deciding on whether to sell or not should be something that is not based purely on whether you will maximize the selling price. Here are some of the questions I ask of sellers before answering the question:
1. Where do you plan to live if you were to sell?
2. What is your motive to sell: is it simply to maximize your profit, or do you have other reasons?
3. How long have you owned the home and what have you invested into the property?
4. What are your monthly costs to own and operate this home?
5. Do you have a mortgage? Is it a fixed rate mortgage?
6. How does the cost of your home match your net worth and income? What percentage of your net worth does the home represent?
7. What are the current market conditions in your specific classification and location. What are the projected longterm trends?
8. How new/old is your renovation/condition of your home? When might it need renovation? If recently renovated, when might its added value to the consumer start to fade?
9. Have you seen the properties your compares closest to to better understand what they are listed for, what has recently closed and what was recently signed? A COLLECTION can be helpful here.
10. Will your home need repairs, additional maintenance, renovation, assessments, higher real estate insurance/taxes in the coming months and years? Do you have a complete accounting on estimates for cost?
11. How much time do you have? This is a brutal question. But possibly the most important one. Too many people delay decisions forgetting how time erodes opportunity and enjoyment. I have seen old relatives suffer difficult circumstances in their huge homes with lots of stairs waiting for a better time to sell….then suffering a fall. What was the value of the potential upside of a higher sale price compared to the QUALITY of life had they moved into a simpler single-floor home without stairs? How long do kids live with you before they are off to college? Are you willing to sacrifice your need for space for the PERFECT time to sell? If you are buying a larger home, selling in a down-market may have an upside on the BUY side.
These are just 11 questions I ask. There are many more. No real estate evaluation should be over-simplified with generic answers based on averages. Each person’s home and circumstances are very different. No human or home is an average. A home is a substantial investment requiring serious analysis, evaluation and consideration. Yes, we need to help simplify these matters, but over-simplifying them is not in the best interests of the consumer. Balance-sheet thinking should replace transaction obsession.
The above demonstrates yet again how the services professional agents go well beyond the mere transactional duties. Substantive, non-googleable or non-do-it-yourself advisory with real fact-based insight is an invaluable service that most are very willing to pay for.
by Leonard Steinberg
|Many parts around the US are experiencing massive surges in rent prices, well above the average rate of inflation. A new report shows that rents rose in 96% of 252 housing markets. In most parts the natural forces of free markets are at work: when there are 10 renters for one apartment, you can be certain over-bidding will occur. |
Housing represents about 40% of CPI, so what happens in home pricing matters….lots! Nationally, average apartment rents rose 9.4% in the second quarter of 2022 compared with the same quarter in 2021. While that is high by historical standards, it is down from the more than 11% annual increases seen the previous two quarters, and there is an expectation that these increases will moderate to around 6.2% higher than 2021 for the year. Costar is projecting a 4.9% increase for 2023. If rents continue to rise at 4%, $2,500/month rent today could be $3,700/m a decade from now.
In many areas where people moved after the pandemic for a more affordable lifestyle, rents rose even more, making these areas a lot less affordable than imagined when you consider the average American spends over 30% of their income on rent. 80% of municipalities saw the average rent increase by 10% or more. Miami had the biggest increase in average rent, rising 59%. Rents are up 31% in Tempe, Arizona, 21% in San Diego, and 30% in Austin. However, rents have also risen in areas that have always had high rents: New York, Boston, Los Angeles.
Why do rents rise?1. An imbalance between supply and demand.2. More people focused on renting rather than buying, mostly because of affordability and availability of for sale homes.3. Rising operational and labor costs for landlords, including rising real estate taxes.4. Because people are willing to pay the price.5. Aging housing stock that requires massive renovation and upgrades.6. Fear of buying/committing to a purchase.
While rent hyperinflation can be great for landlords, some downsides are: 1. A pro-forma based on exaggerated high rental returns can run into trouble when markets turn. Already banks have started to discount the more over-exuberant expectations.2. Those who draw capital from properties producing high returns right now could run into trouble if rents subside or vacancies emerge.3. Governments come under greater pressure from voters to implement laws around rent control and stabilization. Penalties for vacant properties are also possible.4. When people spend too much on rent, they don’t have money left to spend on other things and this can lead to recession.5. When rents soar, fees come under attack…..including agent fees!
Most extremes don’t end well. Yes, some rental properties were under-valued in areas where new demand seems long term, but most seem very, very frothy.
Do We Play An Active Inflation Role?
What can YOU AND I do to curb rising inflation? I hate to tell you this, but we could actually do LOTS. In an unreal world. But we live in the real world, so……
One of the key drivers of inflation is the cost of housing. In many parts of the country COVID has fueled new audiences. Housing costs, accounting for almost a third of the Labor Department’s consumer-price index, were the largest single driver of inflation in the Atlanta area and similar places in 2021. We in the real estate profession are helping facilitate rising prices …..often MASSIVE price hikes. Have you EVER said to any of your clients in a multiple bidding scenario to take the asking price instead of the offer 10% over ask because it’s their patriotic duty to keep inflation down? HAH! I wouldn’t even attempt to do so. I know the answer. Have you ever told your sellers or landlords not to raise prices when the market is rising? The reality is we live in a free market system driven by supply and demand. I have yet to meet a lottery winner who wishes to redistribute their wins to everyone who lost. I have yet to meet a seller/owner who wishes to take a lower price to help the US economy tame inflation too…..
The reality about inflation is that when demand far outstrips supply, prices rise. That excess demand is fueled by multiple factors. And thrown into the mix is some good old fashioned greed…..and why not if everyone else is doing it? Why not, if we live in a free market capitalist system? We are reaping the rewards on the rise: chances are we will also feel the pain when the markets shift. They always do. I don’t ever recall myself sympathizing with a retail store when they had to discount their products deeply because of a lack of demand……I do recall the pains of real estate markets when we had to slash prices and accept low offers…..or had no showings and no offers. Markets change and they always will. We all play a role in them, consciously and unconsciously…..
Because of COVID, many parts of the US are reeling from even higher inflation rates because those moving in from more expensive parts – accustomed to far higher housing costs and higher wages – are willing to pay much higher prices than traditional ‘local’ pricing. When housing costs rise for locals, they command higher wages. More people moving into one area fuels demand and diminishes supply. Higher wages add to inflation by triggering rising corporate pricing on the goods and services they sell to pay for this.
So next time I complain about rising prices, I will turn to the mirror and ask myself: am I truly innocent of playing a role in this “BECAUSE YOU CAN” pricing moment? No, we are not responsible for inflation but to better understand it, we are witness to its primary causes each and every day. And we are part of the process that facilitates it. Most people will sell something for a higher price – if they can – regardless of costs.
And yes, prices can and do come down…..triggering DEFLATION and discounting…..and we will be active participants in that too when/if the time comes. Free market pricing is all about supply and demand.
The Energy (R)evolution
by Leonard Steinberg
We are in the midst of a rather exciting revolution. It started decades ago when in 2006, US President George Bush – a Texan – boldly claimed: “America is addicted to Oil”. That was a startling admission. Now Texas – the US’s largest oil producer – produces about 7,352 megawatts of new wind, solar and energy storage, the most in the US. The runner-up, California, produces about 2,697 megawatts. I seriously doubt oil is going away, but it is incredible to witness how we are in the midst of a massive transition to more, cleaner (and possibly cheaper) energy.
We are experiencing a massive transformation in our cities, states, towns – and homes – as electric vehicles will shift issues around ‘filling up’, charging stations, power storage, air and noise pollution, energy use, and geopolitical risks associated with energy-related commodities. Auto executives say more than half of U.S. car sales will be EVs by 2030….that’s very soon! Imagine quiet garbage trucks and delivery vehicles in bigger cities. Quieter highways. Our entire infrastructure will need to be updated, not unlike the internet and cable TV which required similar changes decades ago. We are also seeing a rapid growth in Solar use amongst individual homeowners, buildings and corporate America that is adding massive swaths of energy producing entities to buildings and warehouses…..not just because they want cleaner air: Many are doing so for PROFIT and SAVINGS, possibly the best motivator of all.
Around 50% of a home’s energy use is for heating and cooling. The average US home has around 40 lightbulbs…..switching from 60 Watt incandescent bulbs to 8 Watt LED’s reduces lighting energy consumption by 90%! The EPA estimates that the average homeowner can save 15% on heating and cooling costs (11% of total energy costs) by simply adding insulation in attics, crawl spaces, and basement rim joists. A new modern combi boiler is likely to save between 20-35% on gas usage. Ah, the combination of high and low technology can serve homeowners well!
While we currently are suffering from dramatically higher energy costs – mostly driven by Opec’s monopoly – the upside is these higher costs may be the ultimate motivator for towns, cities, states, countries, corporations and individuals to produce their own energy – preferably clean, renewable energy – to reduce the exorbitant healthcare costs (Air pollution from fossil fuels costs each American an average of $2,500 a year in extra medical bills -Reuters) and suffering (Some estimate 100,000-200,000 Americans die each year related to air pollution) associated with pollution. Not to mention the big savings most experience when creating their own clean energy. Ask Walmart that has become a power company creating a big chunk of their own energy usage. Ikea reduced its outside energy use by 57% at a Baltimore location. The rooftops of US big-box stores offer enough solar potential to power the equivalent of 8 million American homes…. Homes with (attractive) solar generation now sell for a premium in areas. Lots has to be done to make solar more attractive for homes and integrated rooftiles seem to be the best solution but they still require some refinement.
Most revolutions are a bit messy and can hurt. Governments sadly mostly don’t plan in 10 and 20 year segments, remaining more focused on election cycles. We are experiencing this pain right now. But the future is very bright. Soon we may be living in a cleaner, quieter, healthier world. Far from perfect as all energy sources have their downside too. Bravo to our Texan friends and colleagues for setting such a great example for what is possible!
We would like to get your take on this article since we found it informative so what do you think? Let us hear from you! Have a great day!
It is possible that soaring energy costs could trigger a recession. Some believe oil prices could soar as high as $150/barrel. Alienating Russian global supplies is helping drive the price of oil and gas at rather alarming rates, rapidly. Oil and gas impact the price of almost everything and will certainly impact the average consumer’s ability to spend on other things.
The US average consumer consumes over 560 gallons of gas per year. The average U.S. home uses 196 cubic feet of natural gas. Plastics are produced from natural gas, feedstocks derived from natural gas processing, and feedstocks derived from crude oil refining. Almost everything we buy is transported, sometimes long distances, in entities that use gasoline and oil. The US is almost energy independent but pricing of commodities in a global market with OPEC’s baffling control over oil production – imagine if we as a profession formed a cartel to control how much inventory we release into the markets – but it is Europe that is reliant on so much commodity imports that will probably suffer most….thankfully Winter is coming to an end soon requiring less heating.
So is the US heading into a recession? I don’t know. No-one knows for certain. However, its important to note that house prices declined significantly during the 2008-9 Great Recession, but in other modern recessions, house price appreciation hardly shifted, and year-over-year existing-home sales growth barely declined. Home prices and existing home sales don’t necessarily decline just because of a recession. Sometimes the housing market actually benefits by a recession as monetary policy is usually eased to boost the economy, often leading to falling mortgage rates, which increases consumer home buying power that can make homes more affordable.
From July 1981 to November 1982, during the Reagan years, an economic downturn was triggered by tight monetary policy in an effort to fight mounting inflation. It worked, ending a surge of inflation that had started in 1972 and hit a high in the teens in 1980. By 1986 it was under 2%.
A recession may also cool the excessive demand we are currently experiencing – as well as some of the price gouging – which have been one of the prime drivers of supply chain disruptions and rising inflation. Allowing industry to catch up after under-estimating this extreme demand could prepare us for the next surge. Getting the monetary supply balance right will be the key: we want inflation to come down, but we DON’T want tens of thousands of job losses.
Looking to Move-Up to a Luxury Home? Now’s the Time!
by The KCM Crew
If your house no longer fits your needs and you are planning on buying a luxury home, now is a great time to do so! We recently shared data from Trulia’s Market Mismatch Study which showed that in today’s premium home market, buyers are in control.
The inventory of homes for sale in the luxury market far exceeds those searching to purchase these properties in many areas of the country. This means that homes are often staying on the market longer, or can be found at a discount.
Those who have a starter or trade-up home to sell will find buyers competing, and often entering bidding wars, to be able to call your house their new home.
The sale of your starter or trade-up house will aid in coming up with a larger down payment for your new luxury home. Even a 5% down payment on a million-dollar home is $50,000.
But not all who are buying luxury properties have a home to sell first.
In a recent Washington post article, Daryl Judy, an associate broker with Washington Fine Properties, gave some insight into what many millennials are choosing to do:
“Some high-earning millennials save money until they are in their early 30s to buy a place and just skip over that starter-home phase. They’ll stay in an apartment until they can afford to pay for the place they want.”
The best time to sell anything is when demand is high and supply is low. If you are currently in a starter or trade-up house that no longer fits your needs, and are looking to step into a luxury home… Now’s the time to list your house for sale and make your dreams come true.
This $2 Million Home Was Built to Look Like a Ship
But surprisingly, it’s located in the desert of Palm Springs
Text by Jennifer Tzeses Posted July 8, 2016
The “ship” is situated next to a road and surrounded by palm trees.Photo: Courtesy of Hawaii Life Real Estate Brokers
Part irony, part wishful thinking, this Palm Springs, California, home, aptly named Boat House for its shiplike exterior, happens to be located in the heart of the desert. Built in 1992 by architect Michael P. Johnson for race-car driver Jim Jeffords, the property is located on the side of a hill in the gated community of Southridge. Inside the towering glass walls, the interiors feature 14-foot ceilings. Vistas of the arid landscape and valley take center stage in the living room at the bow of the “ship.” There’s also an open-plan kitchen with sliding privacy screens, a dining area, and three en suite bedrooms, including the master suite, which features a skylight and fireplace and overlooks the living room. Outside, there’s an infinity pool and large sun deck, both with beautiful views. Listed for $2 million, this 3,905-square-foot home has 3 bedrooms and 3 baths. Contact: Coldwell Banker, 760-325-4500; coldwellbankerhomes.com
Walls of glass and wood beams surround the living room.
Photo: Courtesy of Hawaii Life Real Estate Brokers
A skylight crowns the master suite.
Photo: Courtesy of Hawaii Life Real Estate Brokers
The pool area offers amazing views.
Photo: Courtesy of Hawaii Life Real Estate Brokers
Thank you Jennifer Tzeses with Architectural digest for including our “Boat House” listing as one of your recent articles you can also see it here: http://www.architecturaldigest.com/story/ship-home-palm-springs
Palm Springs’s Iconic Elrod House, a John Lautner Gem, Asks $8M
Famous for appearing in Diamonds are Forever, the concrete masterpiece returns to the market
by Patrick Sisson
A famous modernist home in Palm Springs designed by John Lautner, known by many for its brief appearance in a Bond film, has recently been re-listed, quickly drawing attention and offers. The one-of-a-kind dwelling, which hasn’t been open to the public for years, returns to the market after a lengthy legal battle and is asking $8M, according to The Desert Sun.
Real estate investor Michael Kilroy purchased the Elrod Home, as well as two other properties (the Steve McQueen House and Boat House), for $11 million. Years later, Kilroy fell on hard times and in 2012, UK-based lender Lloyds Bank sued Kilroy, claiming he had stopped payment and owed $1.8 million. In addition, the nearby Southbridge Property Owners Association also sued, claiming Kilroy owed $150,000 in fees.
Last April, Kilroy filed a petition for bankruptcy, and the creditors agreed he had until the end of 2016 to sell. Last week, local broker Nelson Moe Properties listed the home.
Designed for a noted interior designer and considered a key example of Lautner’s exemplary means of blending architecture and nature, the Elrod House is one of the most famous Modernist homes in Palm Springs. Highlights of the home’s layout include a circular concrete canopy framed by glass windows and a projecting pool deck that seems to float above the landscape.
This isn’t the only John Lautner-designed home to be in the news this year. In February, it was announced that his famous, dramatically slanted Sheats-Goldstein Residence, which made a cameo in The Big Lewbowski, was donated to the Los Angeles County Museum of Art (LACMA).
2175 Southridge Drive, Palm Springs, California [Nelson Moe Properties]
Iconic John Lautner ’60s House Will Be Donated To L.A. Museum [Curbed]
John Lautner’s Elrod House in Palm Springs Wants $10.5M [Curbed]
John Lautner Houses in the Movies: James Bond to Big Lebowski [Curbed]
Thank you Patirck Sisson with L.A. Curbed http://www.curbed.com/authors/patrick-sisson for including our iconic famous high end real estate home as one of your articles!
Stock market swoon stalls luxury home sales
Article by Diana Olick
Rampant volatility in the U.S. stock market is showing up in the high-end housing market. But as with all things real estate, the impact depends entirely on location.
2016 started with a severe stock swoon, and that had an outsized impact on homebuyers with a higher net worth. Historically, high-end housing suffers most in a market downturn.
“As you go up the income quintile, into the top 10 percent, 5 percent, 1 percent by income, their stock exposure increases,” said Sam Khater, chief economist at CoreLogic. “For the typical family, the bulk of their equity is tied up in home equity not stock equity. It’s the reverse for high income.”
Source: Sam Khater/CoreLogic
Khater compared the share of million-dollar home sales to the S&P 500 and found a distinct correlation. While the share of $1 million or more homes is very small, just 1.2 percent of all home sales historically, it can move dramatically depending on stock market gains or losses. From the worst of the financial crisis in 2008 to the peak of the equity markets in May 2015, the share of million dollar and more home sales nearly doubled, according to Khater.
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“Since its peak in May 2015, the S&P index declined 10 percent as of mid-February. This decline in the S&P index was matched by a 30 basis point or 15 percent decline in the $1 million or more share,” Khater said.
The correlation, however, is far more acute in certain locations.
In New York City and San Francisco, where the local economies are tied most to financial markets, sales of high-end homes have weakened, and supply is rising. That jump in inventory will likely affect prices down the road, as supply outstrips demand. Nationally there was a 9.3-month supply of homes listed at $1 million or above in December 2014, but that increased to 13 months by December 2015, according to CoreLogic.
“With more than a year’s supply of inventory, prices, for the most part, won’t be increasing,” Khater said.
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In Washington, D.C., however, the stock effect is far more muted. Government, and the high-priced lawyers and lobbyists that surround it, are a steady denominator.
“Demand is higher, even though the stock market has gotten in the way and the snowstorm has gotten in the way, but demand is there, people are feeling very good about the economy,” said Nancy Taylor Bubes, a 30-year veteran of high-end D.C. real estate and currently an agent with Washington Fine Properties.
She was standing in a $5.75 million listing that received a solid offer in just 10 days. Taylor Bubes, who specializes in the area’s high-end neighborhoods, says she has sold six million-dollar-plus listings year to date, three times what she did last year. Her buyers, mostly domestic and local, are not swayed by Wall Street.
“I actually think the stock market is good for my business. I think people are going to really think about divesting a little bit and putting it into something they would really enjoy,” Taylor Bubes said.
In southwest Florida, however, where real estate is primarily driven by wealthy retirees from the Northeast and Midwest, the story is very different. Sales have slowed dramatically.
“The stock market volatility has definitely impacted the luxury homebuyer in Florida, particularly in Naples and Sarasota,” said Kristine Smale, a senior consultant with John Burns Real Estate Consulting who is based in Florida. “Seasonal traffic is still strong, but would-be buyers are slow to commit this year due to the significant hits to their portfolios. Builders are disappointed, and some are increasing incentives to generate sales,”
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The direction of the luxury real estate market now depends entirely on both the trajectory of the stock market and on inventory levels. Supply of less-expensive homes is extremely tight, and homebuilders are leery of building to that market, as it is harder to meet margins at lower price points. Early last year, before the stock market began its fall, the CEO of Pulte Group, Richard Dugas, said the company would focus more on high-end product, because that is where the demand is.
If the stock market settles, the spring housing market could see a resurgence on the high end. If not, supply will surely increase, and prices will chill.