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Will High-Priced Homes Lead A Housing Recovery?
Despite a huge downturn in most housing markets, the high end of the pricing spectrum has not suffered nearly as much. If the general economy remains robust, demand for high-priced homes may be building, leading to the hope that luxury homes could lead recovery.
Late last year, California production builder Mick Pattinson of Barratt American Homes told us that in 2006, "We saw reluctance to buy at the top of the market, in homes priced above $1 million. But (in 2007) the top has come back — not just buying houses, but at prices that are good for us." As a result, Barratt American has shifted its production toward the luxury market.
That got us thinking. Because the general economy is still cooking in the Sun Belt — even in markets where home sales are in the doldrums — is it possible pent-up demand is building among well-heeled potential buyers, not just in California, but elsewhere? Could luxury homes lead a broad-based home sales recovery?
There's disagreement on that. Housing industry consultant and Housing Giants columnist John Burns says it's not happening and doubts it will any time soon except for isolated developments with great locations. "The high end has not fallen as much as the low," Burns admits, "because the biggest change in the market is the need for a larger down payment. The high end is just not affected as much by mortgage issues. There may be location-specific examples of high-end successes, but they are isolated exceptions, not the rule."
Charleston, S.C., custom builder Bennett Hofford Construction has hardly noticed a housing downturn, thanks to steady business in luxury resorts like Kiawah Islanf, where the firm sold this 5,100 square-foot home for $3.7 million.
That may be true, but the exceptions look bigger than just individual projects in good locations. Luxury resort towns, for instance — where the jet-setters gather — have strong housing markets. Some builders in those markets have hardly noticed a downturn. Hank Hofford of Bennett Hofford Construction Co. in Charleston, S.C., notes that Kiawah Island, a barrier island enclave, has hardly missed a beat the last two years.
"Kiawah sold $370 million in real estate last year," he says. "That's not the $530 million they did at the peak of the boom, but it's probably still a top-five year for them." Hofford is riding the wave on Charleston's resort islands, even though the rest of the market is slow. "We booked 19 jobs — 16 new custom homes and three remodels —for a total of more than $35 million going into 2008. I've never started a year with that much custom work already signed up," he says.
David Croom of Croom Construction Co. in posh Vero Beach, Fla., tells a similar tale. He won't give numbers of homes completed or total revenues for his firm but says 2007 was one of his best years ever. "We'll be down a little in 2008 just because the last two years were pushed higher by delayed projects from 2004 and 2005," he says. "In 2004, we had the hurricanes in September. That delayed a lot of construction and pushed the prices of building materials sky high. Then we had spiraling inflation in lot prices and construction costs in 2005. A lot of luxury home buyers backed away. They said, 'This is nuts. We'll wait until the market cools off.' They came back in 2006 and 2007."
Empty-nester, baby boomer snowbirds who travel with the jet set are not deterred by Florida's crashing real-estate markets, Croom says. "Our market starts at $1 million. These buyers are not into delayed gratification, and they're not selling equities or betting on future earnings when they decide to buy. They want what they want — now."
Croom won't give us his job count for 2008. But the fact he has his own trade crews —100 skilled framers, trim carpenters and even painters — on his payroll says enough. If the overall economy stays strong, it seems possible housing recovery may start in the high end of the pricing spectrum. When we see it, beyond the ski resorts and beach retreats of the rich and famous, is another question.