Luxury Insights

The rich are with us still

If you are feeling blue due to the slowdown in purchases of luxury products and services, especially the decline in the luxury home market, have a seat, and remember that the wealthy are with us still, as evidenced by what has been touted as "the auction of the century." 

Billed officially by Christie's auction house as the "Collection Yves Saint Laurent et Pierre Berge," the event, held earlier this year, had more than 30,000 visitors lining up in Paris at the three-day pre-sale event to get a peek at the treasures to be auctioned.  But the real excitement started when the bidding began and the wealthy competed in person and by phone to own something that came with a dollop of YSL mystique.

Bids were in the atmospheric range and seven world record prices were set in the first day of the three day sale, including those for the works of Matisse (a painting at $46 million), Brancusi (sculpture at $37.6million), Mondrian (painting for $27.1 million), and deChirico (painting for $14.2 million). 

An Eileen Gray chair (pictured) went for more than $28 million. 

Total proceeds of the auction reached almost half-a-billion dollars, breaking Christie's previous $76 million dollar record for a previous private sale in Paris. 

So don't despair.  The wealthy are still out there, standing on the sidelines.  Right now it may take the excitement of a collection of art and bibelots assembled over 50-years by a global taste-maker, but tomorrow, when the economic storm clouds have moved on, the rich will be back to explore and buy what's new and exciting and beautiful in the residential housing market.  We can hardly wait!

Luxury Home Short Sales Grow in Importance

The luxury market is facing increasing pressure, aggravated by credit market difficulties in the jumbo mortgage market. As a result, The National Association of Realtors reported that the share of home sales above $750,000 has fallen from 4.4% of total home sales in 2007 to a projected 2.3% of total sales in 2009 (NAR Projection based on partial year statistics). 

Limited loan availability, higher than usual interest rates for jumbo loans (from 150 to 200 basis points higher than conforming loan rates), and stringent loan qualifying requirements have slowed sales of luxury properties.  This has caused the national inventory level of homes priced above $750,000 to rise from 18 months worth in 2007 to more than 40 months worth as of the second quarter of 2009.

The lack of refinancing opportunities, fewer qualified buyers for luxury homes, a growing inventory of unsold luxury homes, and an economy in recession are all creating the “perfect storm” for luxury homeowners who need to sell and can’t.  NAR also reported that as of October 2008, the foreclosure rate on jumbo loans was more than double the rate on conforming loans. 

You can expect to see growing numbers of luxury homeowners in default.  These consumers not only need your help.  They represent an important opportunity.

Some of these homeowners will qualify for short sales and debt relief under the government’s new programs (see Making Home Affordable Fact Sheet: Foreclosure Alternatives and Home Price Decline Protection Incentives PDF 50k), others will have high mortgage balances, which will exclude them.   However, the chances are good that servicers doing Short Sales outside of the new government programs will follow the same basic process and paperwork  utilized in government programs.  Knowledge about these programs will be necessary for some luxury Short Sales and to your advantage in others. 

Watch this blog for more info on how The Institute can help you successfully target the growing Luxury Short Sale niche.

May Wealth Report Newsletter

Members can find the May issue of The Wealth Report Newsletter from The Luxury Institute on our website.  This issue features:

1. Luxury Retail - Sales Still Suffer But Stocks Soar
2. Wealthy Consumers - Spending Plans
3. Financial Services/Wealth Management – Marketing and Sales Practices
4. Luxury Home Appliances – Brand Status
5. Luxury Bathroom Fixtures – Brand Status
6. Luxury Hotels – Brand Status
7. Luxury Jewelry – Brand Status
8. Excellence In Luxury Leadership – Fine Jewelry

Members can download it here (login required).

April Wealth Report Newsletter

Members can find the April issue of The Wealth Report Newsletter from The Luxury Institute on our website.  This issue features insights and commentary on marketing and sales practices in two market segments:

1. Luxury Vacation Real Estate
2. Fractional Ownership & Private Residence Clubs

Members can download it here (login required).

"Best of the Best" Luxury Home Appliances and Bathroom Fixtures Brands

The Luxury Institute has just released its 2009 Luxury Brand Status Index (LBSI) survey, which identifies the top brands based on the ratings of wealthy consumers.

Which luxury home appliances brands deliver the best combination of quality, exclusivity, customer experience and peer prestige?  High net-worth consumers rated Wolf, Viking and Sub-Zero the "Best of the Best" among the 20 brands that were rated.

In the bath fixtures category, Hansgrohe, Showhouse by Moen and Franke were rated the top three among 16 brands.

Here's a link to the Luxury Institute press release.

March Wealth Report

 
Members can find this month's Wealth Report from The Luxury Institute in the Members Only section of our website (login required).

Topics covered this month:

• Still Waiting for Springtime in Retail
• The Current State of the Luxury Industry
• Managing Luxury Brands
• Adopt the Anti Laws of Marketing
• Function of Luxury

Top 10 fashion colors for Fall provide clues to what's new in home decor

New York's "Fashion Week" has just come to a close and the hot new women's fashions for Fall 2009 will soon be in the retail stores. While it's always interesting to see what the designers' models are wearing, what's of more (or at least equal) interest to real estate professionals is what's ahead in home fashion and decor.

Fashion week provides a sneak preview of the colors which be will hot in both clothing and in home interiors. The hues you see on the runway models are predictors of the colors which will soon be seen in wall paints, furnishings, and other home fashions from placemats to towels. So, if you want to know the colors which top builders and interior decorators will be working with later this year, see the Top 10 hues in the "Pantone Fashion Color Report, Fall 2009" (PDF 2.68 MB).  

Take a peek at the report, which shows the "10 most directional colors."  This is valuable information to share with your builder clients and to use when you are talking to home-sellers who need to update properties.  Accessorizing your listings with the hot new colors will give homes a fresh, current look. You can also purchase complete color palettes and trend reports for 2009/2010 on their site. 

 For 2009, the Pantone color of the year is Mimosa (PANTONE® color number 14-0848), a warm, engaging yellow.  According to Pantone, in this time of economic uncertainty and political change, optimism is paramount and no other color expresses hope and reassurance more than yellow.  

London Prices, Falling Down, Falling Down...

In his Raising the Roof Blog, International Herald Tribune writer Kevin Brass writes today:

Bad news continues for London’s luxury market. The latest Knight Frank Prime Central London Index found prices dropped 3.7 percent in January...On the upside, Knight Frank reports signs of increased viewing activity—up 65 percent from January of 2008—a trend also reported by Rightmove.  Knight Frank also has seen more activity from foreign buyers, in particular from the Middle East and Europe...

Bloomberg has a similar story on the wires, and also notes the growing international interest in the London market:

The drop in prices has attracted more potential buyers. The fall in the pound against the dollar and the euro is prompting international buyers to look at London properties. Viewing levels last month were 65 percent higher than a year earlier, while the number of international buyers registering with a broker in January was 35 percent more than the year before.

It's not just London.  We're seeing this in many markets, and often these international buyers are looking for good buys on best-of-class (in a given area/price point) or trophy properties.  

"Elite of the elite still spending" - The Australian

In the midst of the financial crisis this fall, menswear company Brioni launched it's most expensive made-to-measure line ever, with the price for a man's suit topping out at $43,000.  They've sold 30 so far, and the outlook for 2009 is good.

In the 'Elite of the elite' still spending The Australian reports that the top 1-2% of global consumers are still spending:

"The outlook for high-end labels, it turns out, depends on where in the luxury hierarchy they are located. Retailers took a holiday beating in December, and consulting firm Bain & Co expects demand for luxury goods this year to fall by 3-7 per cent overall.  But at the market's upper-most crust - which Bain defines as 70 brands including Loro Piana and Harry Winston, as well as Hermès, Van Cleef and Brioni - sales for 2009 are expected to hold steady or grow moderately, following growth in 2008 of 8 per cent..." 

Other choice quotes:

While middle-income consumers have cut spending because of their income, "that's not the case with the wealthy," says Carl Steidtmann, chief economist at Deloitte LLP. The wealthy are "constrained by guilt, and that's the hurdle high-end brands have to overcome."

Very wealthy people may not be buying as much as they used to, but they aren't reducing their standard of living...

View the article

Good Grief! What's happening to the luxury market?

The luxury market in 2009 will be very different than in 2008

For most of 2008, the luxury market has been bi-modal. The  bottom half of the of the upper tier has been slower than one would normally expect during a market slow down, because many entry-level luxury buyers have stretched to buy as much house as possible, often using loans which proved to be inappropriate for their situations. This resulted in inventory increases and declining values.

On the other end of the spectrum, the top of the luxury market has been strong for the first three quarters of 2008.  National and world records were set for most expensive residential sales and the very top of the market in most metro areas remained active, while properties at other price points languished.   Helping to drive this top of the market activity -- the number of wealthy in the world has increased and the wealth they control has grown. 

As the last quarter of 2008 begins, the global financial market meltdown has created a wait and watch mentality across price ranges.   Buyers at the very top are citizens of the world and their luxury home purchases are often portfolio plays as well as lifestyle purchases.  Leading up to 2008, many very successful individuals had not only moved more of their assets into direct and indirect real estate investments, they had shifted more of these dollars into ownership of multiple residences.  In 2008, asset allocation has shifted again – cash, precious metals and treasuries are king – but residential real estate is still an important part of wealthy individuals’ portfolios. 

This year has been a reminder that real estate is a local business.  Metro areas which have enjoyed strong job and population growth, yet not seen a big run up in real estate prices, are outperforming the market in general.  Dallas is a good example of this.  By contrast, NYC which prospered during Wall Street’s derivative excesses, may face a more sobering marketplace during the last quarter of the year. 

The international buyer has been an important market segment this year.  This niche will still be significant in 2009, but wealthy international buyers will most likely be more cautious purchasers.  Even the big-spending Russian Billionaires must be feeling the result of oil price declines, the drop in the Russian stock market, and the credit crunch of recent weeks. However,targeting the very wealthy is still smart strategy.

Although it’s difficult to predict, at this point, how 2009 might play out, the key factor will be how quickly a US and global financial recovery occurs.  If governmental actions across the world stabilize the financial markets and consumer confidence returns, activity in the top half of the luxury market should be strong again.  In the bottom half of the luxury market, inventories will remain high in early 2009, creating a buyers’ market. 

Financial market health, Interest rates, credit availability, relative currency values, stock market conditions, attractiveness of alternative investments, and political conditions are all wild card factors that will impact the luxury residential market in 2009.

The good news is that the luxury home market is the last segment to slow and the first to bounce back!