Luxury Insights

The missed story: Luxury market outperforming

Early last week NAR released the national numbers for July sales.  Overall sales saw a large drop 27% from June and 25% year-over-year from July 2009. 

As you know by now, the national media jumped on this and pundits and talking heads have been yapping about the dismal housing market and the risks it may or may not pose to the broader economy ever since.  But, hidden in that same data was a good news story about the luxury market that national media seems to have completely missed.

While the pundits debate whether the sharp drop in overall sales was a meaningful indicator of market activity or just a product of the expiration of the home-buyer tax credit and artificially time-shifted demand, they all seem to have missed the fact that while overall sales were sharply down, sales in the $1M+ price segment were UP in every region across the country and more than 6% nationally:

 

It is likely that the 0.7% increase in the national median sale price for July was largely function of this increase sales at the upper end as opposed to growing price strength in the lower-priced segments of the market. 

Bottom line:
The luxury segment is outperforming the market overall, and this is a good news story that needs to be told!  

Members, we'll be emailing you a press release template on this subject that you can customize for your market and send to your press contacts and sphere of influence.

Lessons from a billion dollar family office

In 2009 the Wharton Family Alliance conducted a study that looked at how the "family offices" of the very affluent were able to weather the financial storms of 2008-2009 with very small losses, or in many cases, strong gains.

There is an interesting article in yesterday's Globe & Mail on the subject that looks at the study and identifies three key lessons from the top performers. 

About the study:

In 2007 and again in early 2009, the alliance conducted interviews with wealthy families; 40 per cent had assets of more than $1-billion (U.S.). Half these families were in Europe with 44 per cent in the United States, Canada and South America.

These families have very long time frames, investing with future generations in mind; their returns are often compared to large endowments such as Harvard or Yale.

With that as a comparison, the performance of these families through the 2008 and 2009 downturn was exceptionally good. In the twelve months to June, 2009, Harvard’s and Yale’s endowments each lost more than 25 per cent. By contrast, only 45 per cent of family offices (a professional management organization owned and controlled by the wealthy family) in the study suffered losses over 6 per cent, and 15 per cent actually had positive returns.

The approaches of the top performing family offices were characterized by three common themes:

• Clarity of purpose
  Characterized by clear direction to financial advisers.
• Education and skills
  A focus on cultivating the knowledge and skills required to be a true partner in the managing of investments.
• Healthy skepticism
  "A healthy skepticism about hot trends and unproven approaches to investing – many of the top performing families steered clear of the financial models and algorithm-based approaches to investing so popular in the period leading up to the financial crisis."

Applying this to real estate, it tells you a lot about what to expect when dealing with the very affluent when buying or selling real estate.  It should also inform your approach to dealing with them. 

• Communication and information are especially important. Listen and be clear on their goals and desires.
• Expertise.  They will have a high level of market knowledge and expertise and will demand even more from you, particularly with local and property-specific information.    If you can't match and exceed their knowledge what is your value as an adviser?

From a marketing standpoint, these priorities--expertise, market knowledge, communication, approach-- give you some of the key issues you will need to address in your positioning. 

It also explains why a good market report is one of the most effective tools in a luxury agent's marketing toolbox. 

The Corcoran Group's internet marketing guru to speak at Leaders in Luxury 2010

Matthew Shadbolt
Director of Internet Marketing,
The Corcoran Group

Topic:
How luxury pros can use video and new media
for profitable results

Widely quoted in both real estate and business media, he is a noted expert in internet marketing and understands what works online and how luxury agents like you can use the internet for effective branding, prospecting, and property promotion. 

As Director of Internet Marketing for one of Manhattan's leading real estate brokerage firms, Matthew Shadbolt is responsible for all of Corcoran's interactive output and advertising.  Under his guidance, Corcoran's online audience has quadrupled in fewer than five years. 

Prior to joining Corcoran, Matthew spent five years at Home Shopping Network QVC in both the U.S. and in London (where he developed the world's first real-time interactive television purchasing application).  A native of the United Kingdom, Matthew graduated from the Jan van Eyck Akademie in The Netherlands.

If you are a successful luxury agent, please join us at Leaders in Luxury 2010.  From the networking cocktails to the killer keynotes, it will be two business-building days of fantastic networking, idea sharing, and fun. 

If you haven't already signed-up, registration for the two-day Leaders in Luxury event this year
is only $895.  There are limited seats remaining, so act now.

More information and registration

See you in Austin!

Making Social Networking Work for You

Social media can be a tool for increasing your market presence and branding yourself as the local agent of choice, according to Deborah Valledor the COO of the nation’s largest REALTOR® association, The Miami Association of Realtors, and our July webinar presenter.  Here are just five key points from Deborah’s presentation:

1.  Before you start your social networking here are some key decisions to make.

•   What audience do you want to reach (Buyers?  Sellers?  A special niche?  Other agents?) 
•   What result do you want to accomplish?
•   What persona do you want to create?

If you don’t have clear answers to these questions, you won’t have a clear social networking strategy.  You may still have fun with your social networking, but you are unlikely to get good business results.

2.  Once you’ve made these decisions, you are on your way to creating your image or brand.           

• Use your photo, logo, and content of your message to create the image or persona you want.
• Be consistent across all media--print, online, social media.  This will reinforce the positioning you are trying to establish.

3.  Create value for the reader/viewer

• Think “content rich”
• Ask yourself is your information valuable, relevant, correct, and would you be interested in the information?
• Do give, give, give.   Don’t sell, sell, sell.

4.  Work to create a following

•  Communicate in a “voice” that sounds like you are talking to someone you know
•  Try to create discussion and keep it positive
•  Acknowledge anyone who responds
•  Don’t ignore negative comments.  Be polite, positive, and try to turn negatives around
•  Be authentic and trustworthy

5.  Use your blog as a "hub" for your online information and identity

• Use other social media to drive traffic to your blog
• Put all the info on your blog
• Let your audience “pull” the information

Hear more from Deborah at our Leaders In Luxury event scheduled for October 20-22, in Austin (TX).

McMansion or McCarriage House? Are Americans showing preference for smaller homes?

The results from a July survey conducted by Trulia and Harris Interactive suggest that after a long trend toward wanting larger homes, American tastes may be moving in the opposite direction.

As the Trulia Blog puts it:

Americans are veering away from the “McMansions” that had grown popular before the recession. Those American adults for whom home ownership is part of the American Dream displayed a preference for smaller homes, with only 9 percent saying their ideal home size is more than 3,200 square feet– the same number of who said they’d like their home to be between 800 and 1,400 square feet. Fifty-five percent of Americans would prefer a home between 1,401 and 2,600 square feet.

 

But what about the luxury market?  "Small luxury" is nothing new.  There has long been a segment of the market looking for "small luxury," particularly with modernist homes.  We also saw a luxury downsizing trend that started to appear towards the end of the recent boom. 

Though this trend will likely be most evident in new home construction, it will be interesting to see how this plays out in the luxury market in general.  

What do you think?  Are you seeing this in you luxury markets? 

NAR data shows big lift in luxury sales for June

Here's a chart based on NAR's June data for existing single family home sales by sales price. 

As illustrated by the blue bars in the graph below, sales of luxury made up a small percentage of the total transactions and the vast majority of sales were in the sub-$500k price ranges.  This is typical. 

What's interesting and perhaps less expected is the amount that year-over-year sales (red bars) are up at the higher price points:

• $500k-$750k: up almost 20%
• $750k-$1M: up almost 30%
• $1M+: up 35%

It is no secret that 2009 was a pretty dismal year in most markets.  Still, a lift of this size is "good news" for the upper-tier.  With our housing market challenges far from behind us it is nice to see good news like this once in a while.

New “world record home sale”

London flat brings $220 million, but will it close?

Well, it’s happened again.  There’s another “world’s most expensive home” sale.  A London penthouse in the prestigious One Hyde Park complex in London’s Knightsbridge has gone under contract for a whopping  £140 million – that’s about  US $220 million.  Although the buyer hasn’t been identified, there’s buzz that the soon-to-be-owner may be one of the wealthy Nigerians or Middle Eastern prospects with pockets full of oil money who have been inquiring lately about London’s trophy properties. 

Of course, the big question is whether or not this prime six bedroom property -- which covers two floors and comes complete with SAS-trained security guards -- will close, or as the Brits say, go to completion.  Several world record sales in the last couple of years have fallen though.  Last year’s $57 million Hong Kong apartment sale made headlines with its record $9,200 square foot price, but the deal collapsed this June.  The sale of Villa Leopolda on the French Riviera for $500 million also fell apart after the buyer, Russian oligarch Mikhail Prokhorov, backed out and sued to have his $55 million deposit returned.  The court ruled against him.

Not all trophy home transactions have failed to close.  In 2008, a flat in the redeveloped 8 St. James Square complex in London’s Winchester area sold and settled for $115 million to an Indian billionaire. 

If the One Hyde Park property closes, the buyer will enjoy a wealth of amenities from bullet proof windows, a panic room, and purified air to room service from the Mandarin Oriental Hotel next door. 

The project’s four towers are scheduled for completion in December.  Flats in the 86 unit complex start as low as $31 million. 

This sale and the reported flurry of international buyer interest in London’s trophy homes comes in the wake of rising prices in central London.  Cluttons, a survey and property consulting firm, reports that prices as of second quarter of this year were up 8.7% year-over-year, but still 10.9% below the September 2007 peak.   

Sneek peek at the upcoming Ipsos Mendelsohn Affluent Survey

The annual Ipsos Mendelsohn Affluent Survey is due out next month. Here's a clip from CNBC of an interview with Bob Shullman, President of Ipsos Mendelsohn (you might remember him from our Leaders in Luxury 2008 event) with a sneek peek at some of the results:

Quick summary:

Among the affluent, the economy is the #1 concern, with unemployment and government debt as top economic concerns.  Overall the affluent are doing better than last year, and there has been a increase in the number of millionaires in many metro areas, but overall their spending is still restrained.

Among those earning $250k+ in the next 12 months:

• 54% plan to take and international vacation
• 32% plan to buy or lease a new car
• 21% plan to take a cruise

Among the 20% most affluent Americans, more than 40% plan to spend on their homes this year.

Qualifying Prospective Buyers of Luxury Homes

We've posted a new "eBooklet" on qualifying luxury prospects to the Members Only section of our website. 

This short guide tells you how to easily start the qualifying process with a simple “magic” question that won’t offend a serious buyer.  It also includes sample scripts -- based on whether the prospects will be applying for a loan and need a lender, have their own source for mortgage money, or plan to pay all cash. 

You’ll discover how using this benefit-oriented approach to qualifying can make the process easy while ensuring that you don’t waste your time with “looky-loos” or put your sellers at risk.  You’ll also learn the

• 3 steps necessary to make sure cash buyers really do have the necessary funds
• 5 important points to remember when qualifying prospects
• 8 reasons to take the time to qualify

Members can download it here (PDF format with embedded video) under "Institute eBooklets."

Local trends matter

It is something we say a lot around here. 

It's also what Scott Sambucci of Altos Research said in his recent webcast, The US Housing Market: It’s worse than you think.   Don't let the title scare you.  Even though his projections for the national market and some local markets may be less than rosy, there are some good insights to be had in his webinar.  It's a good summary of where the national market might be headed, a good primer on interpreting market data, and good reminder that real estate is LOCAL. 

National and even metro trends might be important when it comes to setting economic policy or playing Wall Street, but when it comes to buying or selling a home, it's what's happening in that NEIGHBORHOOD, on that STREET, and in that PRICE TIER that really matters.

Let's take Sacramento as an example.  Here's the recent trend in median price for the Sacramento Metro area:

As you can see, prices have been fairly flat after a drop at the end of 2009.   Let's get more local, drill-down and see what we find...

Below is a slide from Scott's webcast showing the Year-Over-Year price differential for three markets within the Sacramento Metro area:

 

The price trends are obviously very different depending on where you are within Sacramento.  Look at the "story" for Davis (the orange line) compared to Rancho Cordova (the green line). 

At the end of last year Davis was in positive territory, but since the end of last year Davis has seen a sharp decline in prices and at the beginning of July was looking at prices down 20% from the previous July. 

On the other hand, Rancho Cordova, which was in negative territory throughout 2008 and 2009, has seen a trend of steady price increases, and was off only 8% from the previous July, its best performance in more than two years!

Very different markets with very different stories--stories that well-informed buyers and sellers must know. 

Are you the trusted storyteller in your market?  You should be.