The housing market might be down, but that isn't stopping movie stars, hedge fund managers, and corporate titans from paying mammoth prices for the most lavish real estate on the planet.
The founder of an investment company last year paid a record $103 million for 40 acres of oceanfront property in East Hampton, N.Y., where he is building a mansion. A hedge fund manager just paid $49 million for a 29-room townhouse on the Upper East Side of Manhattan, once owned by Penthouse publisher Robert Guccione. That same house had been on the market in 2003 for a mere $29.9 million, meaning it sold for nearly 64% more than the price it listed at four years ago, when the housing boom was still going strong.
And on the West Coast, the 29-bedroom, 40-bath former home of William Randolph Hearst and actress Marion Davies is on the market in Beverly Hills for $165 million, which might be the highest asking price for a home in U.S. history.
"For the ultraluxury market to take a hit, there would have to be serious financial woes that went a lot deeper than what we're seeing now," said Rick Goodwin, publisher of Unique Homes, a magazine and Web site about luxury properties. "If they've got the money, it's not going to be a hardship to fork over cash for a $10 million house."
The top 5% of the market is strong not just because the rich in the U.S. are getting richer. Wealthy foreign buyers are also coming in to take advantage of the weak dollar and relatively bargain prices, said Laurie Moore-Moore, founder of the Institute for Luxury Home Marketing in Dallas, which trains agents to work in the high-end international property market.
The ubër-wealthy are also less concerned about interest-rate fluctuations and other mortgage issues; about a third of buyers of $1 million-plus homes pay cash, Moore-Moore said.
Jumbo loan crunch
Sales are much weaker for lower-priced luxury homes, those in the range of $1 million to $3 million, because the credit crunch is making it more difficult for buyers in that market to qualify for loans. That hangs up sellers in that market who want to trade up. "Though they may not require a mortgage themselves, [they] might be waiting to sell a $1 million or $2 million home and are depending on other buyers to move up," Goodwin said.
With home prices fluctuating across all ranges, BusinessWeek.com decided to test your ability to guess how much houses are listed for in this uncertain real estate market. We created an interactive quiz that includes properties that list from $350,000 to more than $50 million.
Moore-Moore said the ultra-high-end market — generally above $5 million — has remained robust because rich buyers are looking for trophy homes and the supply is limited. Even in weak markets like Las Vegas, luxury condos on the Strip are in high demand, she said. The same is true of Beverly Hills in California and Palm Beach in Florida.
She expects fewer buyers from the financial industry and more foreign buyers in coming months as problems on Wall Street increase. Citigroup, facing losses related to subprime-related debt, is expected to lay off thousands more workers. And layoffs are under way at Goldman Sachs Group, Merrill Lynch, Bear Stearns, and Morgan Stanley.
"When you get into the luxury market, it's not about square footage multiplied by X dollars," she said. "It's about the amenities and the unique features."
Bargains for billionaires
Mike Colpitts, founder and editor of Housingpredictor.com, said the number of wealthy buyers is increasing and many of them have made their fortunes in real estate and understand the business. Many luxury real estate buyers are now getting more than one appraisal of properties before making a purchase.
"They know when things get bad, they know it's time to buy," Colpitts said.
Stephen Shapiro, chairman of Westside Estate Agency, which has the $165 million listing, said there's a shortage of homes in Beverly Hills for $30 million and more. There's little room to build more sprawling mansions without knocking down smaller ones, he said.
But real estate, even the trophy home market, is local. Jerry Heller, regional manager for LandVest for the south coast of Massachusetts, said sales have slowed since the peak of the market in 2005.
"Things are definitely quieter," Heller said. "There are fewer properties on the higher end available for sale. That's a result of people being concerned they'd have to discount properties too much to sell them…Prices were going up exponentially, now prices have flatted out."