Luxury Insights

Almost 10% of jumbo mortgages 'seriously delinquent'

According to a new report by Fitch Ratings, "serious delinquencies" on prime jumbo mortgages rose again last month, nearing 10%.  "Serious delinquencies" are payments at least 60 days late.  

"The trend line for delinquencies indicates the 10% level could be reached as early as next month," according to a Fitch statement. The rate last month reached 9.6%, nearly triple that of last year.  Jumbo mortgages are loans larger than Fannie Mae or Freddie Mac will finance.

It would be interesting to know what percentage  of these loans in arrears are strategic defaults. Are you seeing luxury homeowners choosing to stop paying their loans even though they might be able to afford them?

Bubble Talk in Canada and London

The Wall Street Journal is running a couple of articles looking at the rapidly appreciating real estate markets in Canada and the London and the concerns that these might be "bubbles."

Housing Rebound in Canada Spurs Talk of a New Bubble

Last Wednesday, a housing-price index for Canada's six biggest cities posted its seventh straight monthly gain, showing home prices in November are now back to their prerecession peak. Another broader measure shows the average home price in 2009 hitting a record. Home building has picked up too, with housing starts in December jumping to their highest level since October 2008...

Canada's finance officials say they're watching home prices carefully. The finance minister in December outlined steps he can take to cool things down, if needed. The central bank last month said it is watching the booming market with "vigilance, but not alarm."

Some observers foresee trouble...

The London Real Estate Bubble Is Back—and It's Scary

Looking at the real estate listings here is like stepping back in time to that unreal, giddy world of three years ago—before Lehman, before subprime, before AIG. Back to a period when everyone was either rich or on their way, either from flipping condos or running hedge funds, and the only direction was up.

But these prices are now, and they contain an ominous message: The London real estate bubble, arguably the biggest one of all, still hasn't popped...

Analyzing and Understanding your Market: Listed vs. Sold

In the previous post we looked at the List-to-Sales Price Ratio.  In this post last post of this series  we'll be looking at Listed vs. Sold.

Listed vs. Sold is a measure of the number of homes listed vs. the number sold (aka "real buyers") in a given market or market segment over a given period of time.  This can be expressed as the percentage sold.  While it is not a true odds calculation, it can be one way to answer the question, "What are the odds of selling my home at a given price in a given period of time?"

Here is a table showing the number of properties for sale, the number of properties sold, and the percentage of properties sold for each price segment in a given period, for an imaginary market. 

Looking at this table we can see the relative activity of each price segment.  In this case the $500k-$599k price segment is the most active.  Compared to the $2M+ segment, more than three times as many of the homes on the market sold during the period! 

Knowing this you can sit down with your sellers and talk to them about the odds of selling their home at a given price point. 

You can also do the same exercise with Pending Sales for another view of current market conditions, and you can vary the period and track this over time to identify trends in the market and market segments.  Looking at the Sales-to-Expiration measure will also illustrate trends in demand.

California million dollar home sales “down, but not out”

In 2006, million dollar home sales in California were clicking along at a brisk rate – one home sale in every nine was at the million dollar or above price point.  In 2009, sales of California’s million dollar properties had skidded to just one sale in every 25, for a total of 18,621 million dollar sales in the Golden State for the year. 

Around 29% of the buyers in the upper tier paid all cash.  On the other side of the coin, in 2009, there were 4,925 notices of default (step one in a foreclosure) recorded on homes which had previously sold for at least a million dollars. 

This is all according to a new report from San Diego based MDA DataQuick.  

State wide, the company reports that of California’s million-dollar-plus sales: 

• 332 sales were for more than $5 million
• 228 sales were $4 million to just under $5 million
•  590 sales fell in the $3 million to just under $4 million
• 1,902 sales were $2 million to just under $3 million
• 15,569 sales were between $1 million and $2 million

Wondering what you got for your money last year?  DataQuick reports a median luxury home size of 2,646 with four bedrooms and three baths.  Median price for luxury homes for the year was $605 per square foot (down about 10% from 2008)

The most expensive confirmed purchase in California last year was a 22,721-square-foot, 9-bedroom, 10-bathroom Bel Air house built in 2008 which sold for $26,500,000 in July.

How the rich choose real estate agents

Research has shown that when it comes to choosing real estate agents the affluent tend to look for:

• Expertise and market knowledge (that's knowledge of both the geographic area AND the luxury market niche)
• Positive past experience.  If they have used an agent before and were satisfied with the service they are likely to use that agent again.
• Quality of the Listing Presentation.  We like to call the listing presentation a Marketing Consultation because that's what it should be.  A better listing presentation can trump a previous relationship.
• Luxury home marketing network or program.  This might be your affiliation with your brand's national or international luxury program, a luxury network, or even a broker-specific luxury program.  If your firm doesn't offer this, develop you own program for luxury properties and leverage your affiliation with organizations like The Institute for Luxury Home Marketing and tools like ProxioPro.

Do you have to live their lifestyle to work with the affluent?  No.  As a provider of professional services they are likely to evaluate you based their perception of your knowledge, your expertise, and your ability to get the job done. 

To find success in the luxury market you must position yourself as a market expert and consistently deliver on the promises implicit in that expertise.

A new auction record and trends in big spending

8 minutes and $104,000,000 later...a new art auction record.

An Alberto Giacometti bronze brought £65,001,250 (about $104,000,000) at Sotheby's Impressionist and Modern Art Evening Sale yesterday in London. 

As Georgina Adam, editor-at-large of The Art Newspaper explains to the BBC, "There's a market which is sort of exceptional for exceptional things.  If something is a one in a lifetime opportunity, people will really step up to the plate and they will spend enormous amounts of money because it was a now or never opportunity."

Overall it was a stellar event for Sotheby's.  An oil painting by Gustav Klimt fetched over £26 million and the sale total for the evening auction was £146,828,350 (almost a quarter billion dollars) also a record.

On the London real estate front, The Knight Frank Prime Central London Index shows  a 1.1% increase in prime Central London real estate prices in January, with properties at the top of the market (the £10m+ segment) showing the greatest price appreciation.   Inventory is low and buyers are lining up.

Despite the continued global economic crisis and uncertainties in the banking and financial sectors, the very affluent are clearly still making choice investments and spending. There are other hints at a possible loosening of the wealthy's purse strings and reports to expect more private jets at the super  bowl this year...

What are you seeing in your luxury markets?

Terminology Tip: Don’t use "comparable properties"

Yes, you read that right.  The use of the words “comparable properties” or “comparables” can actually create problems for you with your upscale homeowner. 

Here’s what happens.  You say “comparable property” and your luxury homeowner thinks, “My home is custom.  It’s special and unique.  Sorry, but there are no comparables.”  Sometimes they even tell you this.  Whether they verbalize it or simply think it, they block out what you are telling them about relative value.  Your excellent price opinion is ignored and agreeing on pricing can become more of a hurdle.

Sidestep the problem of comparables with a simple change of terminology.  Instead, say, “These are the relevant properties with regard to homes a prospective purchaser for your home may also be looking at and considering.”  Or, “These are the relevant properties which the buyer’s lender’s appraiser will most likely be reviewing to help establish an appraised value for your home.”    This helps diffuse the issue of “But, there are no comparables.”

Don’t get caught in the “There are no comparables!” trap when a simple change in terminology to relevant properties can help you keep your seller more open minded.

Analyzing and Understanding your Market: List-to-Sales Price Ratio

In the previous post in this series we looked at way to use the Number of Real Buyers measure.  In this post we'll be looking at the List-to-Sales Price Ratio.

The List-to-Sales Price Differential is a measure of the difference between the initial list price and the final sale price of a property (or the average difference among a group of properties).   This is often expressed as a percentage, and another way to think about this measure is as percentage discounted.  As we discussed in Part 1 of this series, you'll want to calculate this for each price segment you define in your market.  

Here's a sample chart for one segment of an imaginary market:

The List-to-Sales Price ratio is trending down.  Discounts are increasing in this market segment, and prices are likely slipping.  Think about how you can use this information.  Are other price segments of this market following the same trend?  Is this segment following the overall market trend or running counter to it?  Do others in the marketplace perceive this?  What factors are likely to alter this trend?  Are they likely?

How will this change your strategy for this market segment?  Would you take a slightly overpriced listing in a market segment showing this trend?  How would you advise your buyers in these market conditions?

Next:  Listed vs. Sold or the odds of selling a property.