Booming vacation home purchases may be the marquee real estate story of the pandemic, but big-ticket transactions are also driving sales in major global cities as ultra-high-net-worth buyers seek out spacious single-family homes.
“The market is oddly strong. I think by the end of the year, you might see a record year in the upper end,” said David Kramer of Hilton & Hyland/Luxury Portfolio International in Los Angeles. “At the beginning of the pandemic, all of a sudden things started selling in all price ranges. People said, ‘We don’t know when this is going to stop. We’re not going away for the summer. If we’re stuck at home, we want to be stuck at home in a nice place.’”
And while prices don’t necessarily seem poised to skyrocket, both buyers and sellers who might naturally be inclined to wait out the current crisis may want to consider getting deals done now before supply becomes even more limited, or demand quiets down.
Mr. Kramer sold the late auto executive Lee Iacocca’s former Bel-Air mansion for $19.5 million in March, when Covid-19 had just arrived in the U.S., and since then, Los Angeles, in particular, has seen a string of high-profile super-luxury transactions, most notably the recent sale of Jeffrey Katzenberg’s $125 million estate.
A similar trend can be seen in other cities, as well.
In the Miami area, there were 21 pending sales for properties priced above $10 million between May and July, compared to just seven pending sales in that price range during the same period last year, said Ron Shuffield, president of Berkshire Hathaway HomeServices EWM Realty.
“We sold something for $49.5 million a few weeks ago, the second most expensive home in Miami,” Mr. Shuffield said. “We saw this market start up again in the last quarter of 2019, and now it’s the most active market we’ve seen maybe ever in this price range.”
Even in New York City, where townhouse sales in the upper tier of the market haven’t been as brisk, there’s still activity in what’s normally one of the slowest times of the year.
“We have a house for $28.5 million, and in any other year I couldn’t imagine listing that in the middle of the summer,” said Jeremy Stein of Sotheby’s International Realty in New York. “What I’m seeing from my colleagues in other markets is that very high-end property is moving. People with a lot of money who want to be somewhere, sheltering in place, are sort of like, ‘This is the time to invest in a home.’”
Across the U.S., sales of single-family properties over $10 million took a steep drop in May, declining 43.8% year-over-year, according to data collected by Redfinfor Mansion Global. Sales in the ultra-luxury sector had “significantly recovered” by July, however, rising 11.1% year-over-year. A separate report released by Redfin on Thursday also showed sales of large homes up 21% year-over-year in July, with sales for larger properties growing at 10 times the rate of smaller homes.
Record-low interest rates; a record-high S&P 500; the appeal of stable assets in a volatile economy; and work-from-home and remote-learning policies have all combined to create a robust market for high-priced single-family properties that can serve as catch-all compounds, live-work spaces, and resorts as their well-off owners hunker down.
The ongoing demand in the high end in some ways mirrors the market post-2008 following the economic crisis, when demand for luxury properties in many cases bounced back long before the rest of the housing market followed suit.
“2006 and 2007 were rough, but 2008 we had this big upturn in the high end and it continued each year afterward until probably a couple of years ago,” Mr. Kramer said. “Part of what drives the high end is if [buyers] can get a deal.”
Buyers Looking to Lock Down ‘Bargains’
Even buyers looking to spend upward of $10 million or $20 million on a property tend to shop with an eye to getting the best deal possible. And in most markets, after years of buyer tastes trending toward smaller properties with less upkeep, large luxury homes can still be found at a relative discount for the time being. Even the current increase in activity has yet to push prices above a property’s actual value, though inventory remains tight.
“There’s demand in the high end, but there’s not silly demand,” said Michael Nourmand, president of Nourmand & Associates in Los Angeles. “There are basically two types of properties in the high end that are selling. You have unique properties, that have an incredible view or a big piece of land or a notable architect. And you have price-driven sales, properties that are perceived as a bargain.”
Mr. Katzenberg’s estate is an example of the former, Mr. Nourmand said, and as for the latter, a Beverly Hills home formerly owned by Brad Pitt and Jennifer Aniston sold for $32.5 million earlier this month after initially listing for $56 million in 2019. (Ms. Aniston and Mr. Pitt sold the property for $28 million in 2006.)
“Fifteen years later, this house is selling for 10% more. To me, that's a deal,” Mr. Nourmand said.
In other markets like London and Dubai, prices were already trading at a discount across the board.
“We’ve seen 20% off because of Brexit, and I think possibly 10% off post-Covid,” said Martin Bikhit, managing director of Berkshire Hathaway HomeServices Kay & Company in London. “The market here is still very, very price sensitive. There’s clearly demand for single-family houses, but you have to price it correctly or you won’t get people to engage.”
Dubai has seen similar discounts driven by excess supply built in advance of the now-postponed Expo 2020, but newfound demand for villas in the last several months has slowed the price drops.
“Prices have been adjusting for two or three years; I’d say about a 20% reduction,” said Dounia Fadi, chief operating officer of Berkshire Hathaway HomeServices Gulf Properties. “The bigger villas, they have adjusted their prices, and the good deals have been picked up. Sellers are holding onto their prices, because we’re seeing demand.”
In spite of their sense of urgency, few buyers in any market are eager enough to overpay.
“What we’re telling clients is that it’s not that market anymore where if you have a $30 million house, you price it at $45 million and hope to get $30 million,” said Los Angeles-based Douglas Elliman agent Josh Altman. “Now, you price it at $30 million. The overprice game doesn’t work; this isn’t the market to do it in. But if you price it well, it will sell quickly.”
Conversely, most sellers aren’t so desperate that they’ll part with properties for prices they deem too low.
Even in San Francisco, where the single-family market currently has a relative excess of supply, prices have still gone up, and some would-be sellers are opting to wait this cycle out before listing. “There are few luxury homeowners or sellers who are in a position where they have to sell at any given moment,” said Harry Clark of Corcoran Global Living in San Francisco. “Their decision can be paced with the market.”
A Strategic Moment for Sellers
While prices may not be stratospheric, by all accounts, sales are moving quickly, and owners sitting on large properties may find this an opportune moment to list while a larger proportion of buyers’ wealth is being directed toward their homes. In many cases, sprawling properties that had sat on the market pre-pandemic are now going into contract, and the current level of demand may present a rare opportunity for sellers.
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“You have a lot of rich people that are spending less money on traditional things,” Mr. Nourmand said. “They’re not traveling, they’re not eating at restaurants like they were, they’re not having parties or spending on entertainment, going to shows and sporting events. If you’re wealthy, what you’re going to spend money on [right now] is your house.”
“And while there are a lot of luxury buyers who pay all cash, low interest rates are helpful because money is cheap,” Mr. Nourmand added.
This is particularly true, given that most markets are seeing a comparative lack of inventory to match the current demand. For London homes in the £20 million (US$26.42 million) to £30 million range, “we’ve been very busy,” said David Forbes, chairman of the Savills Private Office Sloane Street. “We have a lack of stock. People are stuck in homes and don’t want to sell or have gone away.”
In Miami, inventory “just dried up during Covid,” Mr. Shuffield said. “We built up tremendous pent-up demand. We have been strongly encouraging people [to sell] in all price ranges.”
Some buyers may opt to test the market with off-market or “pocket” listings, which are always more common in the top end of the market and allow sellers to suss out potential interest without necessarily going public.
“There are a lot of properties being shown that are not currently on the market,” Mr. Altman said. “If a seller is realistic, they’re going to sell either way.”
For both buyers and sellers, it seems that the current market presents an opportunity to strategically re-shuffle their real estate holdings.
“Buyers are ready, there’s cash, there’s checks waving around,” said Andrew Cleator of Sotheby’s International Realty in Dubai. “At the moment, we just need the sellers at the right price and the sales will happen. Immediately.”