Wednesday, Nov. 18
Posted 11 a.m. EDT
The news that shocked Wall Street: Luxury-homebuilder Toll Brothers announced last Tuesday that contracts for new homes rose 42 percent compared with the previous year, sending homebuilder stocks higher. According to an article in The Wall Street Journal, the value of the new contracts rose 62 percent, to $430.8 million, from fourth quarter 2008.
If spending by the rich will help boost the economy, as I mentioned in my previous post, this is good news indeed. Up till now, the housing sector has been grim across the board.
At the beginning of the real estate market crash, many experts believed the high-end residential enclaves such as Palm Beach, Fla., Southern California and The Hamptons would flaunt their stability in the face of our overextended mortgage follies and subsequent crashes. Multimillionaires might experience the same precipitous decline in the stock market as the rest of us, but their mansions, at least, would hold their value -- so the believers said. And who would have predicted that wealthy mortgage holders would lose their homes to foreclosure?
Third-quarter home-sales reports revealed that the mighty fall just as fast and hard. And now it's a bargain-hunter's game for existing luxury properties.
According to Miller Samuel Inc., a New York appraiser and Prudential Douglas Elliman Real Estate, the pricey Hamptons on Long Island, N.Y., has experienced a 32-percent increase in home sales. The increase is attributed to average concessions of 19 percent off the asking prices. But there's still ample inventory. Take a drive though any of the rich neighborhoods like Palm Beach and you'll see plenty of discreet "for sale" signs nestled in the multimillion-dollar landscaped lawns.
Many mansions, few buyers: In Southern California, there is a surplus of mansions on the market priced $3 million and higher, according to an article in The LA Times. Rather than sell at drastically reduced prices, sellers -- especially speculators -- had been trying to wait out the market, but it seems the market is taking too long to correct and they've been forced to capitulate and price at a loss.
And it's hardly shocking anymore to hear about the latest celebrity unloading properties to avoid bankruptcy. This month, actor Nicolas Cage lost two of his homes to the bank when no buyers showed up to bid on them at auction. Actor Stephen Baldwin filed for voluntary Chapter 11 bankruptcy in July after lenders sought foreclosure. The value of his home, at $1.1 million, was less than his $1.2 million in mortgages.
While sellers of existing mansions may remain in a chokehold for the time being, at least new-home buyers are starting to breathe life into luxury real estate sales.
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