Stephen Reed Photography via CIRE via AP
Luxury real estate got battered in 2016 in some of the toniest markets – in Manhattan, in the Hamptons, in Aspen, in Miami, etc., but then some sales closed this year, and traffic ticked up in some places, and the meme cropped up that the soaring stock market or whatever was pulling luxury real estate out of its funk.
Last month, Bloomberg explained the phenomenon this way:
Manhattan’s luxury apartment market is seeing sparks of life after sputtering for much of last year as a construction surge created an abundance of choices for the well-heeled. The first two weeks of January marked the strongest start to a year since 2014 for sales at $ 4 million or higher, with 50 contracts in that range signed, according to a report from Olshan Realty Inc. The increase in deals, coinciding with a stock-market euphoria and developers’ greater price flexibility, follows a year in which luxury contracts fell by 18% from 2015….
But it may just be that sellers, after watching their properties languish on the market, swallowed the bitter medicine and slashed the price they’re willing to take in order to make a deal.
“Nearly every time we read about a high priced sale, there is usually a big discount associated with it,” explained Jonathan Miller, CEO of real estate appraisal firm Miller Samuel, in his newsletter. It doesn’t mean the luxury end of the housing market is suddenly recovering, but “that the property was significantly overpriced, to begin with, and after a lengthy marketing time, the seller came down and joined current market conditions.”
Aspen ran into trouble in 2016. According to the Elliman Report, luxury sales in Q4 dropped 11% year-over-year to 25 houses. And the median price plunged 29% to $ 4.8 million.
So it was a huge relief in 2017 when the sale of a 14,000-square-foot, eight-bedroom, 11-bathroom house closed at a price that was slightly above the most expensive sale in 2016, according to Mansion Global. A turnaround of the market?
The house, which had languished on the market since August 2015, sold for $ 24.4 million: 32% below original asking price!
And Aspen’s most expensive sale of 2016? It closed in November at $ 24 million, 26% below the original asking price!
Douglas Elliman Real Estate
In the Hamptons, a playground for the well-heeled, a similar scenario played out. Judi Desiderio, CEO of real estate broker Town & Country, told Reuters: “The high end sank like a stone in 2016.”
In her annual list of the top ten sales in the Hamptons, the most expensive home sold for $ 70 million – less than half the record of $ 147 million during boom-year 2014. The lowest-price home on her top-ten list changed hands at $ 15.99 million, the lowest since 2010, she said.
But traffic to the eight offices of her brokerage was up in January, and indications suggest a better 2017, she told Reuters.
Total home sales in the Hamptons in Q4 dropped 15% year-over-year. The median price fell 7% and the average price 30%, according to the Elliman Report. At the luxury end, the median price plunged 30%, and the average price 43%!
Same thing, but not as advanced in Miami-Dade. In Miami Beach, the number of luxury sales – defined as the top 10% on the price scale – in Q4 dropped 23% year-over-year, according to the Elliman report. In Miami itself, luxury condo sales plunged 26% and the median price 32%, which is now filtering into the luxury single-family market.
But hope came early this year it seemed: on February 15, Forbes reported that a developer was able to unload a 13,500 square foot, six-bedroom oceanfront home for $ 22.5 million, “the highest price paid for a single family home in the city in two years.” But that wondrous sale happened at a price that was 34% below the original asking price.
The most expensive home in San Francisco that sold in 2016 – a 1902 mansion which had been converted to an 11-unit apartment building and reconverted into a 9,095 square foot mansion – went for $ 21.8 million, and here too: 28% below original asking price!
As Jonathan Miller would put it: sellers “came down and joined current market conditions.” He has a special word for these lofty asking prices: “aspirational prices” – when sellers get hung up on prices that are “detached from what buyers were willing to pay”:
The conventional wisdom in many luxury markets is that demand has waned. I think the more accurate take on the market is that the era of “aspirational” pricing is over.
Referring to an event he’d attended the day before, Miller added:
One of the speakers said they are seeing a lot more high-end sales occurring, so the high end is coming back. I agree that we indeed are seeing more high-end sales, but only after their asking prices have been cut sharply to current conditions.
The blame falls more on the seller who probably didn’t listen to their broker’s advice in 2015 and saw lots of other sellers listing at similar levels. In the current market, the demand remains significant but only after asking prices are close to reality.
I’m all anecdotal here but could it be said that super luxury list prices, in general, could be overpriced by a third? It’s not unreasonable when a listing sits on the market for 1-2 years without any offers. It suggests the degree of impact the aspiration pricing can be holding back sales activity.
But that’s how it is: When a market turns, sellers, stuck in the halcyon days of the past, refuse to lower their prices. But potential buyers lose interest at these prices, and transactions stall. Once sellers adjust prices to “current conditions,” buyers start nibbling again. Volume ticks up, at lower prices – until that batch of buyers is gone. Then the next batch of buyers, seeing what prices have done, expects more declines, and the dance continues.
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