May292014

Home sales are up for the top 1%, the bottom 99%, not so much

The housing recovery benefits the top 1% who have the cash and the credit to complete the sale. The other 99% continue to struggle.

California_real_estate_billionaireThe rich get richer, or so they say. It’s the rich who have the cash for a down payment and the good credit to qualify for a mortgage, so the one segment of the housing market seeing the most activity is the top 1%. For everyone else, the housing recovery is something they only read about in the financial media, but it doesn’t really impact them.

With the current political and financial regime in place, the 1% benefit the most. Federal reserve policy provides cheap debt to inflate asset values, and since the 1% owns most of these assets, they benefit the most from these policies. Tax rates are low by historic standards, and with capital gains taxes at 20%, the rich escape the more onerous income taxes when they sell their profitable assets and move money into real estate. Unless we elect a true populist president and Congress that favors the middle class and the poor over the rich, the 1% will continue to do well, and so will their real estate markets.

2014 Luxury Report: Sales of Priciest 1% of Homes Climb While Rest of Home Sales Still Down

by Troy Martin | May 27, 2014

Neighborhoods in Los Angeles, Orange County and San Francisco Dominate the Top 20 List of Most Expensive Homes

Home sales so far this year are lower than they were in 2013, but there’s one sliver of the housing market that’s going strong: the very top of it. Sales of the priciest 1 percent of homes are up 21.1 percent so far this year, following a gain of 35.7 percent in 2013.  Meanwhile, in the other 99 percent of the market, home sales have fallen 7.6 percent in 2014.

Growth in the Number of Homes Sold in the top 1%

That’s an amazing bifurcation of the market, and the explanation is simple: the top 1% received all the benefit of the federal reserves asset inflation policies, and they are using their stock and bond gains to buy real estate.

Luxury sales are up, and way up, in metros across the country. Ten markets have seen sales growth above 50 percent so far in 2014, and Oakland and San Jose are on pace to nearly double the number of home sales since last year in the most expensive 1 percent of the market.

As for the other 99 percent? While home sales have shown meager to modest gains in the non-luxury portion of the market in Oakland (up 2.2% over last year), Miami (up 1%), Raleigh-Durham (up 1.2%) and Atlanta (up 4.8%), other markets including Phoenix (down 15.7%) and Minneapolis (down 12.5%) display a strange (and perhaps troubling) dichotomy: For the top 1 percent, the housing market is still booming. But for the rest of the market, the recovery is running out of gas. As home prices have risen, wage and job growth have failed to keep up.

Growth in the Number of Homes Sold among the Top 1% by Metro

Three markets from the Bay Area top the list. No big surprise for the many Bay Area readers to frequent this blog.

The price to reach the top 1 percent of the housing market varies widely by metro. In San Francisco, the most expensive 1 percent of homes sold for $5.35 million or more. In Los Angeles, joining the high-end luxury market will set you back at least $3.65 million, but if you’re willing to live a bit farther south in Orange County, you can squeeze into a luxury home for just $3.45 million. The budget luxury buyer could look to Atlanta ($861,000), Minneapolis ($881,000) or Raleigh ($815,000), where access to the top 1 percent of the market can be purchased for six figures rather than seven.

So who can afford these luxury homes? Banks don’t offer conventional loans for homes in this price range. But to put things in perspective, here’s what it would take: In San Francisco, a luxury homebuyer would need a million-dollar down payment and an annual salary of $916,000 to qualify for a 30-year fixed-rate loan, and to afford what would be a $21,369 monthly mortgage payment. In a lower-priced luxury market such as Raleigh, an annual income of just $140,000 could keep a buyer comfortably among the 1 percent in this hypothetical scenario.

Minimum price to purchase a top 1% home by metro

Of course, like 44.7 percent of buyers in this price tier, you may prefer to pay with cash.  That’s compared with the 32 percent of purchases made with cash among all home sales, as we found in our report on all-cash transactions.

Portion of Top 1% Homes Purchased With All Cash

The top 1% have always had a higher percentage of all-cash transactions. These people have the money, so they don’t need the debt to buy a home. Keith Jurow emailed me this great table showing the breakdown of cash purchases by price point.

Redfin -- all cash purchase percentage in 19 major metros

I don’t favor buying beach properties. While owners may see appreciation, the cashflow stinks. If you factor in the negative cashflow from buying one of these with debt, the investment returns are not that great. For example, look at today’s featured property and examine it’s investor returns.

So where are people buying beach properties?

Top 20 Beach Town Housing Markets

May 22, 2014, By RealtyTrac Staff

… For the report, RealtyTrac first selected the top 100 best beach towns based on four criteria: average temperature, percent of sunny days, percent of days with good air quality, and crime rates. The top 100 towns based on these criteria were then sorted by median value of single family homes and condos, from lowest to highest. The top 20 markets all had median home values below $1 million.

“Buying near the beach is one of the best ways to ensure a property will appreciate in value,” said Daren Blomquist, vice president at RealtyTrac. “Whether buying for retirement, a vacation home or a primary residence, homes located in quality beach towns benefit from virtually unlimited demand and a finite supply of land to build on.”

Four of the top 20 beach town housing markets were in Florida, led by Hobe Sound, a town of less than 15,000 located in Martin County about halfway between West Palm Beach and Port St. Lucie. Hobe Sound had an average temperature of 76 degrees, 64 percent sunny days, 98 percent of days with good air quality and a crime grade of A+. The town ranked No. 1 on the list thanks to its low median estimated market value of homes and condos: $191,189.

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Five California beach towns were in the top 20, led by Los Osos in San Luis Obispo County on the Central Coast of the state. The town of about 15,000 had an average temperature of 60 degrees, 78 percent sunny days, 100 percent good air quality days and an A crime rate grade. Its $418,403 median home value was the lowest among all California beach towns on the list and ranked it No. 6 among the top 20.

Other California beach towns among the top 20 were Morro Bay at No. 11, also on the state’s Central Coast, along with the Southern California towns of Dana Point at No. 16, Seal Beach at No. 17, and San Clemente at No. 19.

Dream Beach Town Estates

If you are interested in browsing for dream beach town estates in Southern California, we have a page devoted to the best deals in this market. I’ve set up a query of the highest rated new listings that’s updated hourly. Check it out.

Meet with us to register at Orchard Hills and save money

Orchard Hills is having a grand opening this weekend. We expect a big turnout to see this much anticipated debut.

We are offering buyers a refund of anything over 1.5% back on new construction from our fee that is paid to us by the builder.

Contact Shevy at 949.769.1599, and he will arrange to meet you at the opening to register. He must accompany you to registration in order to secure your rebate.

[listing mls=”LG14110168″]