In the US, 2 housing markets and 2 directions
By MICHELLE CONLIN
More from BusinessWeek
* Can Netflix Find Its Future by Abandoning the Past?
<http://www.businessweek.com/magazine/can-netflix-find-its-future-by-aba\
ndoning-the-past-09222011.html>
* America's Best Young Entrepreneurs 2011
<http://www.businessweek.com/small-business/special-reports/americas-bes\
t-young-entrepreneurs-2011.html>
* Germany's Green Drive Subdues 2013 Power Prices: Energy Markets
<http://www.businessweek.com/news/2011-09-22/germany-s-green-drive-subdu\
es-2013-power-prices-energy-markets.html>
* Erdogan Threatens Blacklist for Oil Firms Drilling in Cyprus
<http://www.businessweek.com/news/2011-09-22/erdogan-threatens-blacklist\
-for-oil-firms-drilling-in-cyprus.html>
* Harper Says U.S. Approval of Keystone Pipeline `No Brainer'
<http://www.businessweek.com/news/2011-09-21/harper-says-u-s-approval-of\
-keystone-pipeline-no-brainer-.html>
Story Tools
* order a reprint <http://www.businessweek.com/reprints.htm>
* digg this
<http://digg.com/submit?phase=2&url=http%3A%2F%2Fwww.businessweek.com%2F\
ap%2F%2FD9PT8V6G1.htm$title=In%20the%20US%2C%202%20housing%20markets%20a\
nd%202%20directions&bodytext=In%20America%2C%20it%27s%20starting%20to%20\
feel%20as%20if%20there%20are%20two%20housing%20markets.%20One%20for%20th\
e%20rich%20and%20one%20for%20everyone%20else.>
* save to del.icio.us
<http://del.icio.us/post?v=4&noui&jump=close&url=http%3A%2F%2Fwww.busine\
ssweek.com%2Fap%2F%2FD9PT8V6G1.htm&title=In%20the%20US%2C%202%20housing%\
20markets%20and%202%20directions¬es=In%20America%2C%20it%27s%20starti\
ng%20to%20feel%20as%20if%20there%20are%20two%20housing%20markets.%20One%\
20for%20the%20rich%20and%20one%20for%20everyone%20else.>
In America, it's starting to feel as if there are two housing markets.
One for the rich and one for everyone else.
Consider foreclosure-ravaged Detroit. In the historic Green Acres
district, a haven for hipsters, a pristine, three-bedroom brick Tudor
recently sold for $6,000 -- about what a buyer would have paid during
the Great Depression.
Yet just 15 miles away, in the posh suburban enclave of Birmingham,
bidding wars are back. Multi-million-dollar mansions are selling
quickly. Sales this August were up 21 percent from the previous year.
The country club has ended its stealth discounts on new memberships.
And Main Street's retail storefronts are full.
"We're getting more showings, more offers and more sales," says Ronni
Keating, a real estate agent with Sotheby's International.
Think of this housing market as bipolar. In the luxury sector, the
recession is a memory and sales and prices are rising. But everywhere
else, the market is moving sideways or getting worse.
In the housing market inhabited by most Americans, prices have fallen
30 percent or more since the peak in 2007. That's a steeper decline
than during the Depression. Some people have had their homes on the
market for a year without a single offer.
Almost a quarter of American homeowners owe more on their house than
it's worth. Another quarter have less than 20 percent equity. About
half of homeowners couldn't get a mortgage if they applied today, says
Paul Dales, senior U.S. economist for Capital Economics.
But then there is the other housing market, occupied by 1.5 percent of
the U.S. population, according to Zillow.com. The one with outdoor
kitchens and in-home spas; with his-and-her boudoirs and closets the
size of starter houses. The one that is not local but global, with
international buyers bidding in all cash. And where the gyrations of the
stock market are cause for conversation, not cutting expenses.
In this land of luxury properties, the Great Recession seems over.
Prices of $1 million-plus properties have risen 0.7 percent since
February, according to Zillow. Prices of houses under $1 million have
fallen more than 1.5 percent.
Normally, these two segments of the housing market rise and fall
together. But now, they're moving in opposite directions.
"Luxury is the best performing segment of the housing market right now,"
says Zillow.com chief economist Stan Humphries.
After every recession since World War II, housing has led the economic
recovery. Not this time. The renewed vitality in the comparatively
small market for luxury homes is not enough to power a full-blown
recovery. This bifurcation in the market is yet another reason Michelle
Meyer, the chief economist at Bank of America Merrill Lynch, says her
housing outlook is "increasingly downbeat."
The phenomenon is not limited to real estate. You can see the same
split in other gauges of the economy. Sales at Saks versus Walmart. Pay
on Wall Street versus Main Street. Corporate profits versus family
balance sheets.
The divide is also making credit a perk of the rich. Mortgage rates are
the lowest in decades. But what good are absurdly cheap rates if you
can't get a mortgage? The banks aren't granting credit to anyone "who
even has a smudge on their application," says Jonathan Miller, founder
of real estate consulting firm Miller Samuel. Applications for new
mortgages languish at 10-year lows.
Across the country, prices on high-end homes fell after the subprime
crash in the fall of 2008. The price on the $25 million mansion became
$20 million, then $15 million. Such "bargains" are pushing more luxury
buyers to commit to more deals.
There are other factors, too. In Detroit, a recovering auto industry is
helping propel high-end sales. All those car executives who have helped
turnaround the American auto industry used to rent. Now they are using
their performance bonuses to buy homes.
Wall Street's recovery has brought back the market for mansions in the
Hamptons, on Long Island, where the number of closings has returned to
the 2007 level, and for luxury co-ops in New York City. And because of
social-network riches in Silicon Valley, twice as many homes have sold
for $5 million or more this year than last.
But in the other housing market, an apartment tower built in 2007 in
San Jose, Calif., recently converted to all-rental. The building had
not sold a single unit. In Miami, a city that exemplifies the
foreclosure epidemic, idled cranes dot the skyline. Unemployment shot up
again this summer from 12 percent to 14 percent, a level not seen since
the energy crisis in 1973. There are so many two-bedroom condos in
gated communities with golf courses, private pools and rustic jogging
paths that you can pick one up for $25,000, 66 percent off the price
five years ago. But luxury condos priced at $1 million or more are
selling as rapidly as they did during the boom.
"In the 20 years that I have been in South Florida real estate, I have
never seen a greater divide between those who have and those who have
not," says Peter Zalewski, founder of the real estate firm Condo
Vultures.
One big factor in the divide is foreign cash, at least in the world of
property. For international buyers, U.S. real estate is the new
undervalued asset, the new fire sale, and foreigners are big buyers of
luxury properties. International clients bought $82 billion worth of
U.S. residential real estate last year, up from $66 billion in 2009. In
states like Florida, international buyers account for a third of
purchases, up from 10 percent in 2007.
"Luxury properties are drawing buyers from all over the world," says
CoreLogic's chief economist, Mark Fleming.
That's true even in such seemingly all-American enclaves as Detroit.
Step off a plane at the city's futuristic new airport and the
internationalization of the Motor City is obvious. All the signs -- as
well as the announcements on the public address system -- are in both
Chinese and English.
In the middle of the terminal sits a five-star Westin Hotel, the better
to serve the global executive class that jets in and out as the U.S.
auto industry regains its footing. Many of them are buying in
Birmingham, where home values are up 3.1 percent this year, according to
Zillow.com.
In Birmingham, local store owners say business is as good as it was
during the boom years last decade. Chasta Fase, who owns Old World
Olive Press, a boutique shop that sells $30 bottles of olive oil from
all around the world says business "has been just awesome" since she
opened her doors in November. And since April, she says, customers have
been spending more than ever.
Real estate agent Keating says the same is happening to her sales. In
June, she sold a lakefront mansion in Birmingham to a Russian
entrepreneur. He had purchased a local steel company that he plans to
turn around.
"They're coming from all over," says Keating, who for the past 30 years
has sold most of the car barons their homes, from Roger Smith, the
former CEO of General Motors, to former Chrysler CEO Bob Nardelli. "I
don't know who any of them are anymore."
[Non-text portions of this message have been removed]
------------------------------------
Yahoo! Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/AsburyPark/
<*> Your email settings:
Individual Email | Traditional
<*> To change settings online go to:
http://groups.yahoo.com/group/AsburyPark/join
(Yahoo! ID required)
<*> To change settings via email:
asburypark-dig...@yahoogroups.com
asburypark-fullfeatu...@yahoogroups.com
<*> To unsubscribe from this group, send an email to:
asburypark-unsubscr...@yahoogroups.com
<*> Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
