The wealthiest Americans have a new attitude about homebuying — and it has led to a crisis in the luxury market
Madeline Stone
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(A home on the market for $135 million in Beverly Hills, California.Courtesy of John Aaroe Group)
Before Zillow, Trulia, Redfin, and Realtor.com, someone interested in buying a home would have to consult a local realtor to access information about what was available on the market.
But as these online property databases rose to prominence, homebuyers became more picky. That is leading to some serious problems in the luxury market, where expensive homes are increasingly taking longer to sell.
Websites like Zillow and Trulia let consumers find what the current owners had paid for a particular home, the price per square foot compared with that of the rest of the neighborhood, and even how many people had viewed the listing page before you. Homebuyers today are better equipped to understand when a home they're seeing is overpriced, which could explain, in part, why some of America's most expensive homes have languished on the market.
The highest end of the American real-estate market has indeed seen a fair bit of softening over the past several months.
According to recent data from Trulia, since last year the US luxury real-estate market has seen a significant increase in for-sale homes needing to reduce their asking price. Trulia's analysis, which looked at for-sale listings at the metro and national level, showed that 11.99% of luxury listings — defined as the top third of all active listings — had experienced a price reduction since first appearing on the market.
That's an increase from 11.01% last year and higher than the 10.66% for all for-sale listings nationally.
"The luxury segment is slowing down more quickly this year than it had in the past. California markets, as well as markets in Texas, are the two major ones that have seen the largest increases in price reductions. Home prices got too high too quickly, and people who listed these homes for sale kind of got ahead of themselves," Trulia data scientist Mark Uh told Business Insider, noting that buyers who know more about the market could wait to make an offer until prices come down a bit.
"In the meantime, income hasn't caught up with such huge increases in real estate prices," he said. "There's not as many people who can afford those homes — supply has grown faster than demand."
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(A model apartment in New York's One57 luxury condo building.Marco Ricca/Extell Development)
The situation has changed from just a few years ago, when the luxury market — especially in places like New York City and Miami — was hot and there wasn't much supply to go around. But now that so many luxury condo buildings have been completed or are nearing completion, supply is way up, and buyers have more options and no sense of urgency to choose between them.
In New York City, well-heeled buyers with many millions to spend can choose between super-expensive condos at One57, 432 Park Avenue, and 111 West 57th Street, just to name a few. Many of those buildings have reduced the prices of their units or gotten more creative with the offerings of extra amenities or unique layouts.
"If they're in the super-luxury category, they have to be very realistic on pricing. There's more importance placed on being the really correct price than there had been in the recent past," Noble Black of Douglas Elliman Real Estate told Business Insider. "There's a lot of choice. If you're a buyer looking to spend $40 million to $50 million, you know there's a lot more selection than there had been in the past few years."
"In the past several years," Black said, a broker could "throw out a crazy price and it would sell for that."
"People are looking at the fundamentals now, really assessing what the property is and what the price is," Black continued. "If those things make sense, there's a demand for it, but it has to be objectively a good deal."
Prices are on their way down
It's not just in New York and Miami that sellers are feeling the effects of a softening luxury market. We've reported on major price chops in other markets on properties owned by big names including Celine Dion, 50 Cent, and Michael Jordan. There are many reasons an otherwise desirable home could take months and even years to find a buyer. It could be that the property has a strange layout, that the owner's style comes off as too quirky, or that a less-than-ideal location can't be justified. Political and economic uncertainties across the globe certainly haven't helped the situation.
But to hear the pros talk about it, it sounds more and more as if price-chopped homes are being brought down to the prices they should have been tagged with in the first place.
"If you want to sell something, you have to be realistic," Ryan Serhant, a broker with Nest Seekers International who stars on Bravo's "Million Dollar Listing New York," told Business Insider. He added that he would often notice potential buyers verifying listing details on their phone at the same time he's showing them around a property.
"People don't want to overpay, but they like to spend money when it's their own idea. Everyone likes to get a deal," he said.
Hilfiger plaza penthouse
(A look inside Tommy Hilfiger's $58.9 million penthouse in the Plaza Hotel.Evan Joseph)
Though Serhant got his start in New York, his team also operates offices in Los Angeles, Miami, and the Hamptons on Long Island, and he says the slowing of the luxury market is a trend he has seen across the board. Serhant agreed with predictions that the market is headed toward a correction soon, but he thinks it's a great thing.
"It's not like real estate is less expensive," he said. "It's like going to a chiropractor to get adjusted — to feel better, it went down to its real price. It's a healthier market for sure. There have been more bidding wars than I can remember, in part because people are starting to price their homes correctly."
