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March 2009

February 2009

Stand Out or Bow Out!

Seigel[1] To survive and thrive in challenging times you need to out-think (not out-spend) your competition and become the "breakaway" brand in your marketplace. If market leadership is your quest it is imperative to sharply differentiate yourself or your company from your competition.  Blend in at your own risk.  Stand out or bow out!

Ron & Alexandra Seigel, owners of Napa Consultants, International, the leading luxury real estate brand strategists, will join us on our March members-only conference call and share the 7 personal branding secrets that can help you become the Google of your marketplace—the breakaway brand.

Earlier today we sent all Members an email with the call date & time as well as dial-in information.  (Reminder emails will follow).  If you deleted it by mistake or didn't receive it contact us for the details. 

Talk to you soon!


How's the Market? You might be surprised...

Just a quick reminder that you can see a near real-time snap shot of marketing conditions in our ILHM National Luxury Market Report which looks at active listings in just the top zip codes of over 30 markets, plus an aggregated view nationally.

Here's a quick peek at the national trends by price, inventory, days-on-market, and market action index (a supply demand function that indicates market strength).  The price volatility and steep changes in inventory we've seen over the first part of this year are really evident in these charts:

National_price
National_inv
National_dom
National_mai  


Of course we all know that real estate is a local business, so looking at what's happening at the local level might be even more interesting, and perhaps even surprising.  Here's a peek at a handful of the local price trend charts:

Charts
Chart2

Keep in mind the data is made up of current active listings, not past closed transactions so what we are seeing is a very current snapshot of the active market--specifically the most expensive zip codes by median price in each area.

You can download a PDF executive summary report here (updated weekly), and Members can access local details in the Members Only section of our website.

The data for the reports comes from our friends at Altos Research, who offer a great set of products for agents.  In fact, they've just launched  a cool new market stats website widget for their Altos Pro users.


Chinese "Foreclosure Tourists" Shopping in U.S.

As a follow up to our earlier post on Chinese bargain hunters planning a trip to the U.S., NPR ran a story earlier this week on the first of 40 or so Chinese shoppers who have come to the US on the shopping trip for bargain-priced real estate.  

The group is visiting  New York, Boston, Las Vegas, San Francisco, and  Los Angeles this week.  The trip was organized by Chinese real estate portal sofun.com.   The story notes that they had 400 or so folks interested in this trip and have apparently been contacted by groups in Australia, Singapore, and Spain who are also interested in coordinating similar trips.

One of the shoppers interviewed was a Chinese lawyer looking for the cash purchase of a home in New York or California in the $500k range or more if "the quality is higher." 

Audio on the NPR website.


Real Estate is Local

Report  
When I woke up this morning, I found a market update email with a link to the @Properties Market Report in my inbox, compliments of Member Steve McEwen.   Here's what it said:

Real Estate is Local
Neighborhood by Neighborhood,
Block by Block

The Tribune reports that on the Near North Side, median home prices were up 9.35% last year and in Uptown prices rose 5.93%.

But if you've picked up a newspaper, turned on the TV or surfed the 'net in the past few weeks, you've inevitably seen negative news about the nationwide drop in home prices from S&P/Case-Shiller Home Price index — a monthly index that reports the change in average home prices year-over-year.

Fortunately, this macro view of the U.S. housing market is of little value to sellers in Chicago. The S&P/Case-Shiller Index and other national indices don't know the market in your neighborhood or on your block. No one knows your market as well as your local @properties agent.

For more information on how the market is faring in Chicago, view the @properties Market Report.


Steve is highlighting some really important points that often get lost in the daily media blitz we're all enduring these days.  

Reports like the Case-Shiller are hugely important tools, but it is SO important to understand what data they are based on and what their numbers represent.  The Case Shiller index is meant to be a broad composite that tracks the relative changes in value of existing (not new) single-family home stock in a given metro area or nationally.  The Case Shiller data includes only transactions related to existing single family homes that have sold at least twice and they seek to control-out things like price increases due to renovations and upgrades, etc.

The Case Shiller is a really useful index for summarizing the general, aggregated price trends for existing single family homes in large geographic areas.   It is a rotten tool if you want to understand what might be happening in a local market or neighborhood as a buyer, seller, or agent. 

As for Chicago, here are the recent numbers from Case Shiller:

CSChicago

For November 2008, they show a 2.8% decline from the previous month and a 12.5% decline from the previous year.  Of course that is NOT what is happening in every neighborhood or at every price point. 

As an approximation of Chicago's luxury market, our ILHM Luxury Market Report looks at trends in active listings across just the 10 most expensive zips (by median price).  Here is the trend for List Price in these top 10 zips:

The Tribune shows an even more granular break-down by neighborhood (across all price points) with about a dozen neighborhoods showing year-over-year price increases:

Tribune_map

Of course what matters to buyers and seller is what is happening in THEIR neighborhood at THEIR price point, and when you provide that information to them you are delivering real value. 

We talk a lot about the importance of a good market report.  It's one of the most powerful tools that agents can use to effectively communicate their expertise and effectively position themselves.  It is particularly important in today's climate.


London Prices, Falling Down, Falling Down...

In his Raising the Roof Blog, International Herald Tribune writer Kevin Brass writes today:

Bad news continues for London’s luxury market. The latest Knight Frank Prime Central London Index found prices dropped 3.7 percent in January...On the upside, Knight Frank reports signs of increased viewing activity—up 65 percent from January of 2008—a trend also reported by Rightmove.  Knight Frank also has seen more activity from foreign buyers, in particular from the Middle East and Europe...

Bloomberg has a similar story on the wires, and also notes the growing international interest in the London market:

The drop in prices has attracted more potential buyers. The fall in the pound against the dollar and the euro is prompting international buyers to look at London properties. Viewing levels last month were 65 percent higher than a year earlier, while the number of international buyers registering with a broker in January was 35 percent more than the year before.


It's not just London.  We're seeing this in many markets, and often these international buyers are looking for good buys on best-of-class (in a given area/price point) or trophy properties.  


Affluent still spending...but on what?

The previous post highlighted the notion that the uber-rich are still spending and on the most expensive and exclusive luxury goods.  While this might be true, it might also be a bit deceptive, since it is only a small segment of the affluent in America that is actually making these purchases. The larger segments of affluent individuals in America are continuing to spend, but not on such extravagant luxury goods. 

Back at the beginning of December we did a post about a study on the spending and brand-preferences of the affluent conducted by our friend Ron Kurtz at the American Affluence Research Center.  Based on that study and other research, Ron has some insights that are relevant here.  Recently he shared them with me in an email:

First, the affluent market is composed primarily of people with middle class backgrounds who continue to pursue a somewhat middle class lifestyle with middle class values. About 90% of the affluent, or 10 million households, are not conspicuous or ostentatious consumers. They spend conservatively and save carefully. America's current credit and economic problems might have been avoided if these affluent people, with their conservative spending and saving habits, had been recognized as role models. They have demonstrated the importance and value of living within your means.

Second, only about 10% of the wealthy, or the 1 million households that account for less than 1% of US households, might be considered conspicuous consumers. With the exception of this relatively small niche segment, the affluent market does not appear to be very knowledgeable about the pricing and brands of products that are generally recognized by marketers as being in the higher price points associated with the luxury category. This seems to create an opportunity to substantially increase the market for high end luxury products if the affluent market can be educated about why they should consider buying them and the brands that offer them.

False View of Luxury Market Created by Anecdotal Research Provided to the Media
None of this is new news or indicative of a new trend. The conventional wisdom is that the US has witnessed increasingly conspicuous and ostentatious consumption by an increasingly affluent market for a period of about 30 years, which has been interrupted by brief interludes of retrenchment during the occasional recession and the 9-11 tragedy. This popular perception of the luxury market and the wealthy has resulted from anecdotal "research" provided to the media that used examples such as a young Wall Street attorney spending $50,000 of a year-end bonus for a new watch or a secretary spending $1,000 for a new hand bag.

Other examples of conspicuous consumption among the wealthiest 1% have created the impression that there were many hundreds of thousands of people making a million dollars a year or more among the ranks of the entertainers, professional athletes, Wall Street bankers and attorneys, Fortune 500 executives, real estate developers, and entrepreneurs who have taken their company public. In fact the latest IRS data shows less than 400,000 US households in this income bracket.

With only about 10% of the US affluent engaged in conspicuous consumption, together with the purchases of luxury goods by international visitors leveraging the weak value of the dollar, a distorted view of the size and nature of the true luxury market in the US has been created.  

The actual size and spending patterns of the affluent market are well documented by the data from the Internal Revenue Service and The Federal Reserve Board and the research of the affluent by former Georgia State University Professor Thomas J. Stanley that began in the 1970s and led to "The Millionaire Next Door" and a series of related books beginning in 1996. Dr. Stanley's research produced similar conclusions regarding the lifestyle, values, spending, and savings profile of the affluent as that suggested by the AARC research. In fact, since AARC's inception in 2002, the results of its research have been consistent with Dr. Stanley's research.

No Long Term Changes in Spending Evident Among the Affluent
Contrary to assertions by some luxury market consultants that the current economic problems are creating longer term changes in their lifestyles and reductions in spending on luxury and conspicuous consumption by America's wealthy, most of the affluent are behaving like their normal, rational, and frugal selves. Their careful spending is not a new trend.

While the concepts of "stealth wealth" and "luxury shame" are now being advanced by the retail and luxury consultants and futurists through anecdotal research about cut backs in the spending on ostentatious luxury, the sale of luxury goods and services, as defined by the majority of America's affluent, is not subject to much change in 2009, just as it has not shown much change over the past 30 years.

We don’t see any evidence that the majority of the affluent are showing major long term trend changes in their spending patterns and attitudes. They have never been ostentatious or conspicuous consumers. They have always been careful shoppers and savers who look for quality and value in their purchases, the brands they buy, and the stores where they shop.

The affluent market in the US is cutting back and deferring expenditures, according to AARC research in early 2008, due to current economic conditions, especially given the reduced values of their homes and stock portfolios. However, these expenditure changes should not materially affect the sales of the high end products and brands normally associated with ostentatious "luxury" because most of the people in this market have not represented a substantial source of the sales of such products. "They will not suddenly be switching from Manolo Blahnik to Stuart Weitzman shoes, from Prada to Coach purses, or from Four Seasons hotels to Marriott, because they were not supporting those brands previously.

The sales of the high end "luxury" products appear to be derived primarily from international "new rich" consumers and by the small segment of the wealthiest 1% in the US, as previously noted.  A portion of the sales have apparently also been derived from those stretching their resources (especially their credit) to achieve a taste of luxury. 

A segment of the small niche market of conspicuous American consumers will have to change their spending and saving behavior. The Wall Street investment bankers, attorneys, and others in related activities are experiencing large reductions in income and net worth. Many of the younger people in this group don't have substantial net worth to fall back on, as they were spending what they were making (and perhaps even more). Changes in the spending of these people, as well as among the wealthy "new rich" citizens of the countries now experiencing recessions and declines in oil and commodity prices, will contribute to the decline in sales of the ostentatious "luxury" brands.


For more information on the American Affluence Research Center, their research and services, visit: http://www.affluenceresearch.org

Members, you can find out more about the AARC offerings to us in the Members Only section of our website.