Luxury Insights

July '07 Home Sales Slower Than July '06

Home sales continue to slow relative to last year.  NAR's unit sales report for July shows a decline in home sales of 6.1% compared to same month last year.  The inventory of homes in MLS bubbled up by 12.3% and the month's supply number was 8.8 months.  Median price was flat at +.03%.  The flat price is perhaps more an indication that higher priced homes are still moving rather than home prices are holding firm.

The new home sales picture is also a bit gloomy.  Sales compared to July last year are down 10.2%.  There is a 7.5 month supply of new homes and the National Association of Home Builders report that a completed new home currently takes 6.1 months to sell. 

Manhattan Market Soars to $50 Million+ Level

More money, less inventory, and the desire for BIG-BIGGER-BIGGEST have driven the New York City luxury home market into the $50 million+ price range. The $50 million mark was set last fall with the $53 million sale of the Harkness Mansion on 75th Street just off Fifth Avenue. Since then, a number of $50 million plus transactions have occurred in the city.

In June, developer Harry Macklowe purchased seven contiguous condominium units (with a total of about 13,000 square feet) at the newly refurbished Plaza. The price? $52 million. Macklowe’s transaction is one of two at the Plaza reported by The New York Times to be for more than $50 million. The other transaction has not yet appeared in public filings, but is said to be in the $56 million range.

This is further evidence that the real estate business is local, different markets are experiencing different things, and the luxury market continues to be the silver lining on the cloud of a generally soft real estate market.

Current Colors Update "Tired" Listings

Just as homes become functionally obsolete over time because of building trends and innovations, a home can become "color obsolete."  How many listing have you had that weren't at peak marketability because the interior colors were out-of-date?  If you want to give your listings a fashion-face lift, here are today's fashionable colors. 

By the way, did you know popular colors phase in and out on a sixteen year bell curve? Most colors rise to the top of the bell curve and peak in popularity over eight years, then wane in desirability over more eight years before sliding off the trend radar.

Here are the current color trends:

* Browns continue to be hot--especially chocolate browns.
* Watch for brown in combination with soft blues, greens, reds, and even black.
* Milk chocolate and gold are a winning combination.
* Blue is moving to the midrange tones like Caribbean and periwinkle.
* Blue also shows up in denim and navy.
* Black and white is still a trendy combination.
* Off white and white with platinum make a strong luxury statement.
* Purple in the shade of violet red is gaining momentum.
* Rose tones will rise to the fore in 2008.
* Raspberry is the most important red pink tone.
* Grays keep growing in importance.
* New greens are minty and creamy. Dirty olive is also showing up in Fall fashions.
* Golds in every tone are in demand (combine with red for more fashion punch)
* Beiges are moving more towards taupe tones.
* Oranges from terra cotta to peach to cinnamon are still popular.

You'll see these colors on the fashion runways and in the upscale homes that look the most "current."

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The Wealthy Increase in Number, Invest More of Their Fortunes in Real Estate

The number of rich not only increased last year, the rich got richer. The good news for the real estate industry is that the wealthy shifted a substantially higher percentage of their investment portfolios into real estate in 2006.

World Wealth Report
According to the just released World Wealth Report, an annual study prepared by Merrill Lynch and CapGemini, the number of financial millionaires jumped to 9.5 million worldwide. That’s up 8.3% over last year. Of the total, 3.2 million are in North America.

The report defines financial millionaires – also referred to as high net worth individuals (HNWI) -- as those with a million dollars or more in investable assets, not including their primary residences. Total wealth of the group reached $37.2 trillion in US dollars.

Money into Real Estate
Last year, the global wealthy pulled substantial dollars out of “alternative investments” such as hedge funds, commodities, foreign currencies and venture capital funds. Instead, they placed a whopping 24% of their total investments into real estate, an increase of 50% over 2005.

While 51% of the HNWI’s overall real estate investments were in commercial real estate and real estate investment trusts, a whopping 49% of the total real estate investment went into vacation and second home properties, generally not financed with mortgages. Statistics for North American millionaires are similar, with 41% of the investment in real estate invested in residential properties.

Desire for Multiple Houses
The wealthy are buying multiple homes.  North American vacation and second home sales are out performing the market overall and the number of trophy properties offered in the double and triple digit millions continues to grow both in the US and abroad.

World Record Sale
The recent record sale of a 20,000 square foot London penthouse overlooking Hyde Park for about $200 million to Sheikh Hamad of Qatar (article in The Times UK) and the sale of a custom home lot in New York’s Hamptons for $103 million are evidence that the super rich see trophy homes as smart investments that also make a statement and enhance one’s lifestyle.

Wealth Growing Globally
Growing wealth is a global phenomenon. The wealthy are citizens of the world, and the demand for über homes from Dubai to London and from Moscow to New York City is high.

According to the World Wealth Report, HNWIs are well-informed about present and approaching economic conditions and quickly reallocate their portfolios to capitalize on market trends. This year, globally, HNWIs liquidated some of their alternative investments to realize significant returns from real estate investments.

Great news for real estate professionals who work in the upper tier.

If Martha Stewart Were Your Prospect...

It took three years and cost more than $1.5 million, but after surveying more than 4000 wealthy individuals, Premium Knowledge Group, an international marketing research and consulting company told us they had broken the “affluence code” and can now anticipate the behavior of the wealthy based on their lifestyles.

Marketing to the wealthy
We looked at their information and agreed that they not only had a new research-based approach to marketing to wealthy individuals, it was information that could give luxury home agents a new marketing tool to leave their competition in the dust.  So, we have negotiated the exclusive rights to this information for the real estate industry. Here’s what we plan to do with it -- develop an advanced training program for our members and create a special white paper report on Affluent Lifestyle Marketing™ (and the six distinct wealthy lifestyles).

We given you one sneak preview of the information in a previous article and offer more information here.  This information cost us a bundle, so we hope you’ll find this snippet interesting and understand why we think it can provide lots of insights when marketing to the wealthy.

According to Affluent Lifestyle Marketing™ there are six different affluent American LifeStyles™. In a previous article we looked at the Unmistakable Affluent  -- the flamboyantly wealthy who “live large” -- and compared them to the Understated Affluents who not only don’t flaunt their wealth, they strive to be low-key.  This time around, we thought we’d give you a sneak preview of  Tasteful Affluents along with some ideas for how to use the information. 

Martha and Ralph
If we want a “poster person” for the Tasteful lifestyle group, we can’t go wrong with Martha Stewart. Ralph Lauren would be another good choice.  Interestingly, each of these successful individuals has built a business around interpreting taste for the consumer. 

Members of this group pride themselves on being a bit different. They want to show good taste, but it’s more important that the things they have be distinctive and set them apart from the crowd. Fitting in isn’t important to these folks. Instead, they wish to be distinct personalities and typically look the part. 

A primary motivator is how they feel about themselves. Tastefuls enjoy shopping and don’t always make decisions based on price.  The written word is important to this group.  They read magazines focused on the home, dining, fashion and travel. You’ll frequently find them Online. They like the beach and are typically interested in wine.

A desire to be different
In short, this wealthy market segment is always looking for something that reflects their sense of being different, their individuality. This difference is often best demonstrated through a sensibility for and knowledge of wonderful design, great workmanship and very high quality materials. Connoisseurship is very important to Tasteful Affluents.

If you are showing homes to a prospect who exhibits these characteristics, don’t talk about the popularity of granite kitchen counters as everyone’s must-have feature. If everyone else loves granite, this group will want something more distinctive.  Instead, point out the unusual grain and the craftsmanship exhibited in the way the edges of the granite slabs have been shaped.  Talk about the uniqueness of the cork kitchen flooring.  Highlight what is unusual, tell stories that focus on the workmanship and quality of things, acknowledge that they may have seen the high-end European dishwasher in Architectural Digest.  Ask which aspects of the home “are them.”  Understand that they are looking for a home based on how it will make them feel about themselves.  Remember, they view themselves as having good taste and pride themselves on being a bit “outside the box” with regard to their style. They also want to be connoisseurs.

Expect Tastefuls to have “Shopped” for homes Online. They do like to shop and may want to actually see more homes in person than some other lifestyle groups.  Price will not be the primary decision factor in their buying decision, but they will want to feel that they are getting value and functionality – as well as something distinctive for their home buying dollar.

Home Sales Statistics Slip and Slide

New Home Sales Slip in June 
According to figures from the US Department of Commerce (PDF, 30k), sales of new single-family homes slipped 22.3 percent in June (as compared to June 2006).  June sales hit a seasonally adjusted annual rate of 834,000 units as new home buyer demand continued to weaken.  The June new home sales pace was down 40 percent from the housing market peak in mid-2005.  June new home inventories stood at 537,000 homes or about 7.8 months of inventory.  Median average-days-on-market for new homes were approximately 180.

June Resale Home Activity Slides   
The National Association of Realtors Existing Home Sales Report for June shows resales down 13.6 percent (not seasonally adjusted) as compared to June of 2006.  Resale inventory is up 12.3 percent to 8.8 months worth of homes on the market.

There's still good news, you just have to look for it!  While the national sales statistics are down, remember that real estate is a local business and markets around the country vary widely.  Take the time to analyze your market, so that you have a clear picture of what's really going on.  For instance, here's some information on Houston to illustrate that you need to look past the basic numbers to understand what's really happening.

Houston's single-family home sales in June declined 8.4 percent compared to the same month last year, yet prices continued rising.  Look closely and you'll discover that almost all of the June decline was within the $80,000 to $140,000 price range and can be attributed to tighter restrictions in the sub-prime lending market.  Home sales in price ranges lower or higher than $80,000 to $140,000 continued at a steady pace, and prices in June continued to display steady growth, as both the median and average total sales price set new records. 

What's up in your market?  You don't know unless you run the numbers. 

Developer Starts Revolution!

Steve Case, co-founder of AOL , has launched Revolution Places, a new destination resort unit of Revolution,  the company he founded in 2005 with $500 million of his own money.  Revolution Places will develop environmentally friendly and culturally sensitive resort properties, the first of which will be  an $800 million, 650-acre luxury resort named Cacique in the Northwest Pacific corner of Costa Rica.

The Costa Rican resort's 270 guest rooms and 300 private homes will be built in the rain forest where the natutral setting can be incorporated --rock walls will become walls of homes and the shade of the vegetation will replace man-made awnings.

In addition to environmentally sensitive architecture, the resort will buy power generated by renewable resources. There are also plans for recycling and solid-waste management programs, as well as on-site waste water treatment facilities.

Revolution Places resorts will cater to a new generation of consumers who are interested in adding lots of experiences to their travel portfolios. In the past, high-end vacations were equated with formal hotels and fine dining, said Donn Davis, chief executive of Revolution Places. "Today's affluent tourists prefer swimming with dolphins and swinging down zip lines," he said.  "They want to eat authentic local food. And they want to take their kids. It's a whole new definition of luxury." 

The resort will also capitalize on star power. Andre Agassi and Steffi Graf will design the tennis and fitness center.  Tom Doak, a renowned golf course designer, will build an 18 hole course. Philippe Cousteau, grandson of the underwater explorer, will serve as the special advisor on environmental issues and will develop special adventure activities.

Exclusive Resorts, a luxury time share business owned by Revolution will build 30 of the resort's residences.  Miraval Spa, another Revolution entity will operate a spa facility with 120 guest rooms and 60 villas.

In lieu of bringing in well known luxury retailers, Cacique will feature local retailers and regional cuisine will be offered. 

Note all the luxury market trends highlighted with this development: 

1. The growing interest in green/environmentally friendly developments 
2. The emphasis on star power to differentiate and brand special amenities 
3. Fractional ownership 
4. Experience-oriented  travel for the whole family (and the desire to own property in locations where there are "experience opportunities") 
5. Desirability of Spa escapes 
6. Interest in international locations

Does “mass luxury” change the wealthy’s perception of what is desirable?

The new 2008 Jaguar XJR Supercharged sedan is $84,200. Give up some bells and whistles and you might negotiate your dealer down to about $76,063. As you’d expect, Jaguar has positioned this full sized, front-wheel-drive beauty as a premium luxury automobile. But is it?

Auto Dinosaur?
In a recent article, Washington Post columnist Warren Brown proposes that as gorgeous as this sleek high-performance vehicle is, instead of being the prestigious car that the wealthy rush to add to their heated garages, “the high-end Jaguar has become a dinosaur.”

Brown argues that, “Prestige thrives on exclusivity, on the desire of the masses to own or have access to what is available to few, which largely is why the few people who can afford it are willing to pay for it.”  But alas, Brown says, “there is precious little on the XJR Supercharged sedan that cannot be found on a good middle-income family car, or on an entry-level luxury automobile, or on a rival luxury model at a substantially lower price.”  Even more distressing, what happens to the prestige when a $30,000 Dodge can give your Jag a run for its money?  If others can have the same (or better) features for much less money, the exclusivity and desirability suffer.

Mass luxury changes perceptions
Is mass luxury having a similar effect on the high end housing market? As mid-range home buyers add fire pits, granite countertops, bamboo floors and Viking ranges to their homes, the wealthy are forced to strive even harder to find the next exotic amenity and fabulous feature to maintain exclusivity and prestige.  Perhaps that explains the growing number of homes priced at $100 million or more.

Gas Guzzling to "Green"
On one hand, the price tag for exclusivity and prestige continues to rise, on the other hand, the definition of prestige can also be measured in ways other than price. Brown suggests that, “prestige in the automobile market has shifted from cars that have the biggest engines and most baubles to those that can go farthest at the lowest cost on the least amount of fuel.  The new automotive boast will go something like this:  'My Smart Car gets better mileage than your Prius without a dual gasoline and electric propulsion system.   So, there!' "

Sensitivity to the environment is beginning to convey prestige in the luxury home market as well -- as evidenced by the growing number of luxury developments that are working to enhance the environment. An example is the exclusive Maui Land and Pineapple Company development which includes a working pineapple plantation and the largest privately owned wildlife preserve in the Hawaiian Islands.

One final thought
Reading back over this, I realize that here’s another application of our Affluent LifeStyles research. The flamboyant Unmistakables may be candidates to  buy the Jaguar because it is expensive enough to make a statement (“Look what I can afford!”).  The Practical Affluents may consider purchasing it it as a reflection of their success.  However, if there's a better (more expensive, more unique) choice, they'll take their big bucks elsewhere. On the other hand, the Tasteful Affluents may gravitate to the Smart Car because of its distinctiveness – it does stand out in a crowd!  If they judge it to be well-made and functional, the Dependable/Value Conscious Affluents may drive Smart Cars, too.  So, once again it seems that prestige and luxury are to some extent in the eye of the beholder.