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July 20, 2015

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Luxury homes now trophy for the wealthy

Source: AP | July 20, 2015, Monday | Print Edition

The poshest of luxury homes are acquiring the cachet of a masterwork by Picasso or Matisse. Rather than settle for garages of antique cars or a museum’s worth of paintings, billionaires are increasingly willing to pay US$100 million for homes that can serve as showcases for their fortunes, according to an analysis issued by Christie’s International Real Estate.

“It tells you that there is a new class of collectible — they’re trophies now,” Dan Conn, CEO of Christie’s real estate brokerage, said of the most lavish homes being acquired.

The luxury housing market has shifted in the past year as the US dollar has strengthened. Sales in Manhattan, Los Angeles, San Francisco, London and other global hubs are stabilizing after having rocketed in 2013, when many buyers cashed in on stock market gains. Now, multi-millionaires and billionaires are seeking estates overseas and at resort destinations, the report said.

The US dollar has appreciated 20 percent against the euro in the past year, making pied-a-terres in Paris and wineries in Bourdeaux more affordable for wealthy Americans. Sales are also surging by averages of more than 20 percent along the beaches of Turks & Caicos and the slopes of Telluride, Colorado.

Five homes sold around the world for more than US$100 million in 2014, and a record 18 were listed for sale at that level, according to the Christie’s report. Last year’s purchases include a US$146 million French Riviera mansion. Each square foot of the home cost US$22,577 — roughly equivalent to a new Honda Accord.

This is the new top tier for billionaires scouring the globe for signature homes, a market that Conn said should continue to prosper because the world minted 200 new billionaires from 2013 to 2014.

“You’ve got this club of billionaires who just like to have unique assets,” Conn said. “But it’s also, truthfully, that they like to entertain their friends and say, ‘This is mine.’”

The luxury market contrasts with the still-struggling US real estate market as a whole. Millions of homeowners still owe more on their mortgages than their homes are worth — a vestige of the housing crash that triggered the Great Recession in late 2007. Buyers remain sensitive to changes in mortgage rates and price swings that could make ownership costlier. At the same time, access to credit remains tight for some. Sales have been running below a pace associated with healthy markets.

“There’s a deeper cultural shift where people aren’t willing to get a house at any cost,” said Glenn Kelman, CEO of the brokerage Redfin.

Existing homes sold at an annual pace of 5.19 million in March, a sharp increase after a brutal winter curtailed buying in the Northeast, the National Association of Realtors said. Kelman warns the sales pace isn’t sustainable because demand has been driven largely by 30-year fixed mortgage rates averaging just 3.65 percent, compared with a 52-week high of 4.33 percent.

Winter storms have also weighed on Manhattan sales, yet analysts view that market as remarkably stable. Sales in the borough during the first three months of 2015 fell 19.5 percent compared to the same period in 2014, while average prices have slipped by roughly US$40,000 to US$1.73 million, according to reports by the brokerage Douglas Elliman.

“We had a horrible winter,” said Dottie Herman, CEO of Douglas Elliman.

She said many new developments in Manhattan that would boost sales have yet to come onto the market.

Herman is also seeing interest in second homes, something she attributes in part to wealthy baby boomers. Sales and prices have surged in winter hotspots such as Aspen, Colorado, where the average sales price jumped 55 percent in the past year to US$4.15 million.

“That’s because of the baby boomers, who are not retiring early and are sometimes on their third wife at 65 and have little kids,” Herman said.

Still, other luxury developers say the stronger US dollar has cut into sales. There has been a 25 percent drop in Manhattan’s monthly sales pace and a 50 percent drop in Miami Beach, said Kevin Maloney, a developer whose firm, Property Markets Group, works on luxury buildings.

Global buyers have become more patient. They are seeking value because their incomes, earned in euros, pesos, reals and other currencies, now buy less in US dollars. Real estate magnates are coping with the same challenge facing manufacturers who are trying to sell their products overseas.

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