It's very interesting reading about the dismissal of Maurice Levin as the public relations officer for Sotheby's International Realty. It seems that he released a memo to the media that quoted Lew Geffen, owner of the agency, as predicting a 40% drop in local luxury house prices, as well as advising franchisees to convince their seller clients to reduce prices by 25% to get properties sold.
It seems that Mr. Levin was not authorized to release that memo, though according to the article at the link above, Mr. Levin had not previously been required to get permission to release internal memos. It's become a bit of a media interest story because, in close proximity time-wise, Sotheby's and Architectural Digest issued a press release of the results of a survey of luxury buyers showing very much the opposite opinion. A few survey responses:
- 72% of respondents believe their primary home value has remained constant or increased in value over the last 12 months (46% remained constant; 26% increased).
- Nearly two-thirds of respondents report that current conditions have “no effect” on their likelihood to sell their primary home (63%).
- In the coming year, 79% believe the value of their primary home will continue to remain constant or increase (55% remain constant; 24% will increase).
Let's hope that the affluent respondents to this survey are much more right than Mr. Geffen.
C level homes were the last to strongly appreciate in the last BOOM… they’ll likely be the last to KA-BOOM as well! (C level = Cheif Officers, i.e. CEOs, COOs, CFOs, etc)
Though they are not as affected (hardly) by subprime chaos, IndyMac’s implosion shows that Alt A loans are a ticking time bomb.
Furthermore, many – at least out here in Silicon Valley – were financed by neg am loans (of which almost no one is even offering any more). While these C level execs should be able to handle the resets, the unavailability of this favored loan program should have some effects.
Finally, and perhaps this is more gradual, as new C levels join the ranks, where are they going to come up with the larger down payment requirements when their prior home doesn’t yield a phat down payment!? Stock option liquidation, sure, in some cases… but just as the old saying about stuff trickling down… well, it trickles up and eventually get those who have the greener acres as well!
Lastly, interesting quote from above mentioned article:
In many markets around the world, agents report that luxury homes are holding their value, even though sales have slowed dramatically.
Sounds like these super smart people have a super short memory when it comes to Econ 101 (remember that whole thing about supply and DEMAND!?) AND are not divorcing their emotions about their “home” versus common investment sense.
BTW, James, good blog and I miss your tech podcast for RE pros.
The luxury and prestige markets are not seemingly driven by the same economic forces that drive the average home owners.
In Toronto, especially in Etobicoke the custom home builder book of business is strong with many projects under (Arch) Planning well into 2010.
I always enjoy your blog.
Sean and David, your comments are much appreciated. It’s nice to know that the posts aren’t just flying around the blogosphere unread.
I thank you for the podcast comment as well. The decision to stop was precipitated by problems with the podcast service I was using. Their stats led me to believe it really wasn’t being listened to very much. I am thinking about doing something again, but hope that About.com will set up a system, so that it will all go through here. Thanks again both of you.
Jim