- The Washington Times - Monday, July 2, 2007

Housing is slumping in most markets, but sales of luxury homes are booming, thanks to raging bull bourses around the globe and the fast-rising incomes of the world’s wealthiest residents.

The record price for a luxury home in the United States recently surpassed $100 million when Schlumberger Oil fortune heiress Adelaide de Menil sold her mansion in Long Island’s East Hampton for $103 million to Ron Baron, the founder of Baron Funds Investment Co.

Luxury home sales are robust worldwide, stoked by strong economic growth, double-digit gains in foreign markets and 11 percent growth last year in wealth among individuals with more than $30 million in assets. Lakshmi Nivas Mittal, chief executive of the world’s largest steel company and the fifth-richest man in the world, recently bought a London estate for $128 million — beating the American record thus far.

“Although the U.S. housing market slipped overall in 2006, the luxury market has continued to boom as a result of rising wealth at the top of the demographic pyramid,” said Laurie Moore-Moore, founder of the Institute for Luxury Home Marketing in Dallas.

Sales of homes priced at $5 million and above jumped 18 percent last year and rose 31 percent in the first quarter of 2007, according to DataQuick, a market research firm. In the Washington area, pricey homes can be found in Potomac, Great Falls, Alexandria and on the water in Annapolis, among other places.

“At least five U.S. sellers are so optimistic that the luxury home market will stay strong that they’ve priced their homes at more than $100 million,” said Ms. Moore-Moore. “We may see a new record in the next 18 months or so.”

The most expensive home under construction is “The Pinnacle” at the members-only Yellowstone Club in Montana, she said. The club’s developer, Tim Blixseth, is offering that estate for $155 million.

Also for sale at $135 million is Saudi Prince Bandar’s estate in Aspen, Colo. A Los Angeles property called “Fleur De Lys” is being offered for $125 million, as is Donald Trump’s Palm Beach residence. “Tranquility,” a Lake Tahoe residence, is a relative bargain with a $100 million price tag.

The trend favoring the rich and tony can be seen even in California, Arizona and Colorado — three of the states hit hardest by mortgage defaults and foreclosures among middle-class housing investors and lower-income subprime borrowers.

Robby Carson, a luxury home specialist at Estes Park Realty of Estes Park, Colo., said he expects another record year of sales at the Colorado mountain resort, with more than $24 million in property listed.

“We’re extremely excited about the growth of the luxury market,” he said, calling it a “silver lining” in the otherwise moribund housing market.

Price also is no object in Montecito and Santa Barbara, exclusive Pacific Coast communities that are the choice of the Hollywood elite. Home sales there more than doubled last year to an eye-popping $219 million and are on pace to break that record this year, according to Distinctive Real Estate, a local firm providing concierge services for its well-heeled clientele in addition to managing home sales.

Mary Beth Woods, a Coldwell Banker real estate agent in Brentwood and Pacific Palisades outside Hollywood, said sales have slowed some from the hectic pace during the housing boom and wealthy buyers are being more cautious about the prices they pay, but she expects solid growth in sales and prices to continue.

“The market was in a frenzy, and homes were overbid,” she said, adding that now the market has slowed to a more “sustainable” pace.

In Arizona’s Valley of the Sun, sales of homes costing $5 million or more jumped from four in 2000 to 32 last year.

“We have the gorgeous weather, some of the country’s best shopping and golf, and many beautifully unique luxury homes that accentuate the aesthetic qualities of the Sonoran Desert,” said Echo Farrell of 1st USA Realty Executives in Scottsdale. “These elements add up to a lot of appeal for clients with high-end tastes.”

Jim Remley, a founder of the Luxury Home Council, which provides schooling for real estate agents seeking to become luxury home specialists, says he has never seen business so good.

“Luxury housing is definitely a bright spot in the market today,” he said.

Typical luxury home buyers are between 40 and 65 years old — in their peak earning years — and get much of their income from stock compensation and market gains, enabling them to make cash deposits covering about a third of their purchases on average, according to a council study. About three-quarters are entrepreneurs, business executives or medical doctors.

Besides selecting exclusive communities to live in, these wealthy buyers want spacious homes averaging between 3,500 and 4,000 square feet, with four or five bedrooms, three or four bathrooms, gourmet kitchens, master bedroom suites, high-end appliances, home office suites and theater rooms.

The rich also remain bullish about real estate as an investment. A recent study by Architectural Digest and Sotheby’s International found that 36 percent of affluent families planned to invest in housing despite the collapse of the market last year. Their unimpaired enthusiasm has driven up sales of luxury homes in places such as Phoenix by as much as 360 percent since 2000.

“Luxury home buyers are somewhat insulated from factors that might affect a typical buyer, like interest rate hikes,” said Scot Spalding, president of LuxuryHomesandProperties.com. “And setting aside real estate, the general economy — especially the stock market — is still booming.”

The divergent fortunes of the rich and the middle-class in the real estate market illustrate the worrisome income gap that has emerged this decade between the vast majority of Americans and those at the top with the high skills and education needed to prosper in the increasingly globalized economy, according to Matthew J. Slaughter, a Dartmouth College professor who recently resigned from the White House Council of Economic Advisers.

“Income growth has been extremely skewed,” with only 3.4 percent of American workers — those with doctorates or professional graduate degrees — experiencing any growth in their real income, adjusted for inflation, this decade, he said.

The trend has resulted in a two-tiered economy — one for those who have triumphed through globalization and the other for the 96 percent of Americans whose purchasing power has not kept pace and are substituting debt for income to buy homes and other things. These debt-laden Americans are now facing a shrinking housing market with unprecedented levels of default and foreclosure.

“There is reason to worry even if one does not care about social equity,” Mr. Slaughter said, because the trend is fueling discontent with the economy and a backlash against globalization in the form of opposition to immigration and international trade, which are perceived as the reasons average wages are stagnant or falling.

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