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...

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.

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?

January Wealth Report now available

The January 2010 Wealth Report Newsletter is now available for members.

In this month's issue:

• Retail Sales Rebound
• Luxury rides strong holiday season to best month in two years
• WealthSurvey: Search Engine Usage & Shopping Habits of the Wealthy
• Luxury Brand Marketing: Planning For 2010 by Thaddeus Kubis
• The Inextricable Link Between CRM and eCommerce by Darren Floyd
• Luxury Goods Need New Venues by Steve Steinberg

Members can access this report on our website (login required).  More on the report and the Luxury Institute here.

Kitchen trends for 2010

Today’s kitchens today are continuing to evolve into family rooms which can accommodate multiple cooks, family dining, and entertaining. 

Here are just a few of the major design trends popping up in luxury multi-purpose kitchens as 2010 begins. 

Countertops
Kitchen countertops are increasing in mass – think thick – and demand is growing for new surface materials.  As granite wanes in popularity, crackle glass, concrete, and wood (with decorative edges) are all moving to the fore as popular countertop materials. One of the most innovative counters combines glass with LED lighting.  The result is a glowing glass countertop which can be programmed with most any color to match your mood of the moment. 

Counters in new kitchens may also vary in height to add visual interest and to create work zones for special purposes and for both short and tall cooks.  Counters and islands are also increasingly designed to double as serving and dining areas.

Work zones
As more activities gravitate to the kitchen, designers are building in special purpose areas.  A quick food prep station makes simple meal preparation and cleanup easy.  A baking center offers ingredient storage within reach and a counter height designed for chopping, mixing, and rolling.  A coffee bar or a wine tasting and beverage center are other popular special purpose work zones. 

Sinks
Large farm sinks are a hot trend and multiple sinks continue to be in demand.  Water conserving faucets are part of a trend toward eco-friendly kitchens.

Cabinetry
Mid-height cabinetry is a major trend in contemporary kitchens and beginning to appear in traditional kitchen designs as well.  Shorter cabinets may “float” on the wall or incorporate European-style legs and even be used as room dividers.  In-demand cabinet materials include stainless steel, environmentally-friendly bamboo, pecan or alder wood.  Cabinets are customized with interior fittings for efficient storage. Horizontal cabinet doors (sometimes motorized) are another emerging kitchen trend.  

Although the all white kitchen is still popular, cabinetry is also showing up in a variety of finishes and colors to give a kitchen the look of a furnished room.

Appliances
Forget the concept of a cooktop, double oven, microwave, dishwasher and a refrigerator creating an adequate kitchen.  Today’s cooks want more.  Extra dishwashing drawers, elaborate coffee making appliances, warming drawers, additional ovens, wine coolers may all be part of a luxury kitchen and many of these appliances may be hidden within cabinetry. 

On the other end of the spectrum, forget subtle, some homeowners are using the refrigerator as kitchen art.  Coolors, an Italian company will silk screen a refrigerators with a bold animal print, your favorite photograph or most any other image.  The range hood or cabinet fronts can be silk screened to match. 

Electronics
The kitchen is now home to televisions, computers, and sound systems.  With friends and family gathering in the kitchen, entertainment and information need to be within reach. 

Multiple kitchens

Luxury homeowners frequently want multiple kitchens.  In addition to the primary gourmet kitchen, a catering kitchen – where preparations occur for dinner parties and other entertaining – may be on the must have list.  A mini-kitchen in the master bedroom and another in the primary guest suite provide a convenient place for a midnight snack or that first cup of morning coffee.  Of course, what was once the barbeque grill has morphed into a full outdoor kitchen with ice maker, dishwasher, dining area and more.

The kitchen is the heart of the house and this decade begins with trends which focus on making it more functional for a variety of lifestyle purposes and more attractive as a entertaining center. 

Luxury Market News: Canada & Hong Kong

The Wall Street Journal reports that the International Monetary Fund express concern yesterday about real estate prices in Hong Kong, which are up 30% this year.  Concern is that a bubble may be brewing.

Prices for luxury homes are at an all-time peak in Hong Kong despite a tightening of lending requirements increasing the required down payment on luxury homes to 40%. 

A little closer to home, a RE/MAX Ontario Atlantic Canada report released yesterday is showing some pretty strong numbers in the Canadian luxury market. 

"Twelve months of healthy home buying activity have clearly been crammed into five short months," Michael Polzler, executive vice president of RE/MAX Ontario-Atlantic Canada.

Toronto has seen a boost in sales of "entry-level" luxury homes in the $1M-$1.5M price range, driven primarily by Bay Street banking bonuses.  There have been over 1,700 sales at $1M+ this year in the Toronto area.

Reports from CTV and The Star have more details.

NYT: Hey, Big Spender, You Want Value?

Interesting article in the New York Times on the growing luxury concierge business.  Affluent clients are turning to concierges for convenience (of course) and also to help ensure that they are getting good value for their money spent.

...The economic downturn has not stopped the world’s wealthiest from spending, but it may have made them focus more on value. And as the market gets more crowded with luxury brands, products and services, the rich are increasingly turning to concierge companies for information, recommendations and what they hope will be better deals, because of partnerships with luxury suppliers the world over...

Perhaps less obvious, some of the newly affluent are turning to concierges for their knowledge of luxury products, services, and culture, knowledge which the client may lack.

“Twenty years ago, wealthy people typically inherited their wealth and grew up being surrounded by luxury brands,” Mr. Cohen said. They had well-connected family and friends to help them navigate through high society. But newly wealthy individuals today are less likely to have inherited these experiences and networks. Concierge services provide entry into the luxury world, as well as guidance and advice.

October Wealth Report Newsletter now available

In this month's issue:

• Wealth and Luxury Trends: 2010 & Beyond, by Milton Pedraza, CEO, Luxury Institute
• Luxury Institute WealthSurvey-Current State of the Luxury Industry (synopsis)
• Keeping Up With The Rockefellers: Affluent Spending In A Recession
• The ROI Of Hiring Right In The Luxury Business
• Rebooting Luxury Expectations with Tomorrow's Stewards of Wealth

Members can access this report on our website (login required).  Note that the Wealth Report is published nine times a year and this will be the last issue for 2009.  The next issue will be January 2010.  More on the report and the Luxury Institute here.

AARC Fall 2009 Affluent Market Tracking Study published today

American Affluence Research Center's new survey of the the wealthiest 10% of US households provides insights into "the new normal," "stealth wealth and luxury shame," and December holiday gift spending.

Conclusions are more positive than the many of the anecdotal examples that have appeared in recent media coverage of the luxury market, though the outlook on the real estate front is not so bullish.

Here are 7 questions and answers that highlight the survey's findings:
 
Should you be concerned about the prevalence of the concepts of "stealth wealth" and "luxury shame"?
Short answer: No. These concepts apparently apply to less than 7% of the affluent.

What is the "new normal" and will the affluent return to pre-recession levels of spending?
Short answer: The "new normal" is not new to the affluent. Most have been careful spenders and aggressive savers who live within their means. They say they will return to pre-recession levels of spending when the economy has recovered and they have recovered the recent losses in their net worth, which they estimate will take 18 to 24 months.

Which segments of the affluent have been reducing/deferring expenditures, which segments will do so over the next 12 months, and which segments are not cutting back?
Short answer: Age and net worth are more important factors than level of income. There is some variation depending on the type of product.

What are the spending plans for December holiday gifts?
Short answer: 9% will spend nothing and among those that will buy gifts, the average expenditure of $2,400 is a 5% decline from 2008.

Which of 8 major expenditures do the affluent expect to make during the next 12 months.
Short answer: Only the building of new homes has not risen since the Spring 2009 survey.

How do the affluent expect to change their spending for 17 products and services during the next 12 months?
Short answer: The spending indexes for all 17 categories have increased from the Spring 2009 survey.

What do the affluent expect of the stock market, business conditions, and their personal income during the next 12 months?
Short answer: They are more positive on all three than in the Spring 2009 survey.

Some other key insights:

• Acquisition plans for all of the 8 major purchase items, with the exception of building primary and vacation homes, rose slightly from the Spring 2009 survey. Plans for a major home remodeling showed the most substantial increase.
• About one in five report they have not changed their spending since the recession began. Of the 80% who have changed their spending, about a quarter do not plan to return to pre-recession levels of spending. This equals roughly 20% of the wealthiest 10% of US households. The two major factors that will influence the respondents to return to pre-recession levels of spending are the recovery of their savings/investments (54%) and the recovery of the stock market (49%). These two factors are important across all demographic segments but a bit more important to those age 60+.  Certainty of job security and/or compensation is relatively more important to those under age 50 and those in the lower level of net worth.

You can find more details and purchase the results on the AARC website.