Luxury Home Sales Still Soaring in U.S.
Despite the fact that Florida home loan rates are at four-year peaks and climbing, and the nation’s torrid housing markets from the past five years are starting to cool off, high-end households are still pumping cash into second homes with plenty to spare, according to Coldwell Banker and Reuters.
More than a third of U.S. owners of houses valued over $1 million in states other than California — where the cutoff is $2 million — own second homes, according to the 2006 Coldwell Banker Previews International Luxury Survey. Another 35 percent are considering buying one.
“This market is hot because 43 percent of these people make over $500,000, and 70 percent of these people said interest rates had no bearing on their purchases and no bearing on some of the leisure things they do,” said Jim Gillespie, Chief Executive of Coldwell Banker Real Estate Corp.
Buyers in this category are typically younger baby boomers, and the second-home purchases are either for family use or for investment. Coldwell Banker sold about $56 billion of homes worth at least $1 million last year, up from $35 billion in 2004 and $23 billion in 2003.
The sector is not immune to the overall slackening in housing, though.
“My sense is that even though these people are not sensitive to interest rates, that there is more inventory in every price range,” Gillespie said.
Sixteen straight interest rate increases by the Federal Reserve, and the possibility of a 17th later in June, are taking the steam out of U.S. housing. Price gains are slowing after five years of big increases and inventories of unsold homes are swelling.
Housing has been a key driver of U.S. economic growth. The Fed has slowed the white-hot pace of housing, particularly purchases by speculators, as it aims to quell inflationary pressures. Housing-related spending on products and services is seen trailing off as a result.
On Friday, Pulte Homes Inc., the second-largest U.S. home builder, slashed its profit outlook, helping send building stocks to lows last seen in 2004. This was the latest evidence that rising interest rates and lofty home prices are crimping demand for housing.
But at the high end, spending plans appear intact. Coldwell expects the second-home buying by high-end owners to stay strong as baby boomers plan for future retirement. The National Association of Realtors and the Fed have said that second-home buying by investors, mainly by speculators, is a wild card for the economy.
A sudden rush of sales from speculators could weaken the housing market more than anticipated. Speculators are in trouble in Florida because of oversupply, so if you’re looking to turn a quick profit as a flipper, you might want to reconsider — especially with the South Florida housing market in a state of flux.
“You need to be a smart investor, and a smart investor does not buy to flip right away,” Gillespie said. “Because of smart investments, equity in their homes and in some cases inheritances, luxury properties have become attainable for many Americans.”
