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The tech crash has hit ultra-high-end home sales



Expected $1 Million Sales Slowdown Yet to Occur; Jitters at $4 Million

For months, rumors have circulated that economic uncertainty and, specifically, the dot-com collapse is squeezing the sales of million-dollar homes in Orange County.

After further review, that “pop” heard at the high-end of the residential market may have been more of a firecracker than a hand grenade.

“In Northern California, where they are more dependent on the high-tech companies, you’re seeing a fallout,” said Les Thomas, president of Shea Homes’ Southern California region. “Intuitively, you would think there would be an impact in Orange County, but looking at the sales since January, the numbers look really good.”

According to figures from Stewart Title, million-dollar home sales so far this year,at least in Newport Beach,are comparable to last year’s numbers. Agents closed 25 million-dollar home sales in January 2001 compared with 15 sales in January 2000; in February, the numbers dipped from 23 sales in 2000 to 12 this year; and the March numbers were a wash: 31 sales in 2000, 32 in 2001.

Talk of a slowdown, for now, is more pertinent to the “true” high-end homes, said Scott Stowell, president of Standard Pacific of Orange County.

“The air is more rarified when you get in the $3.5 million-to-$4 million range and up,” Stowell said. “We’re still selling well at $2 million-and-under, but you see a whole different dynamic when you go beyond that.”

In fact, many industry insiders no longer consider a million-dollar home as a qualifying figure for the upper tier.

“When you say ‘upper tier’ homes, are we talking $5 million, $8 million? Because a million is really not that much anymore,” said Trish Moore, executive director with the Orange Coast Association of Realtors. “Really, the old million-dollar home, is more like $3 million now.”

According to industry sources, the market has slowed a little in that “rarified air,” but the inventory has not increased significantly to cause a problem.

“The market cycle is in a slowdown mode,” said Steve Sutherland, branch manager of Coldwell Banker’s Newport Beach office. “If the inventory increased, the prices would drop. Then you might see people getting nervous.”

So, the numbers and opinions on the subject range widely and whether the high-end market has actually “popped” remains a topic for debate,and one that everyone in the residential community is talking about.

“I’ve heard it,” said John Burns, a principal with The Meyers Group, the Irvine-based real estate consulting firm. “But it hasn’t shown up in our numbers yet.”

What has shown up in Burns’ numbers is a rise in cancellations. Normally, the cancellation rate in this market hovers in the 10%-to-15% range, according to Burns. In March, that number shot up to 21%. Figures were not yet available for April.

While the cancellation rate has risen of late, the supply-demand imbalance keeps the marketplace moving, observers said.

“The continuing problem of insufficient housing occurring at all price ranges, no matter how much the local economy slows, means that home prices will continue to rise,” said Robert A. Kleinhenz, senior economist for the California Association of Realtors.

Earlier this year, according to Burns, an Orange County agent pre-sold 10 homes for a new subdivision. Due to either market uncertainty or lack of financing, all 10 contracts fell through. But then all 10 sold again in a single weekend, as potential buyers snapped up the available housing.

“An increase in cancellations is a warning sign,” Burns said. “We’ve seen the cancellation rates rise overall, in all price ranges. But sales are up, too. We’ve really not seen this level of cancellations with sales continuing to increase.”

Orange County’s high-end residential market includes Coto de Caza, Lemon Heights and pockets of million-dollar homes sprinkled in San Juan Capistrano, but the core high-end market stretches from Newport Beach through the Newport Coast to Laguna Beach.

As of last week, 301 homes in the $1 million-and-up range were on the market in Newport Beach and Newport Coast, according to figures from Stewart Title. Though numbers are not available from the same time last year, an industry source said that 301 is a high number to sit on the market.

“There’s not as much urgency to make a decision today, because there’s a lot on the market,” said Jackie Handleman, a broker associate with Strada Properties.

It adds up to a buyer’s market. Looking at the Newport area, you find a collection of villages, very specific villages, according to Coldwell’s Sutherland.

“Someone looking for a home on Balboa Island is not necessarily interested in the product on the market in the Pelicans.”

The people in this price bracket aren’t desperate to buy. Instead, they bide their time while looking for a dream house. They are able to sit and wait until the market turns more favorable or until they find the dream house that fits their specific needs.

Irvine-based residential builder Standard Pacific Corp. has witnessed positive sales so far this year. The company’s Seabourn at Crystal Cove development, where homes go for $1.1 million to $1.9 million, has exceeded expectations, a company official said.

“We’ve sold 19 houses to date in the first 17 weeks of the year,” said Stowell.

When you are looking at homes in the $1 million-plus range, three sales per month is a pretty good absorption rate for a builder, according to Stowell.

“We are currently selling over four per month,” he said.

Waterfront homes are not the only high-end properties moving: Standard Pacific has also experienced strong sales at Tustin Ranch Estates. Priced in the same range as Seabourn, Standard Pacific has sold 15 of the Tustin Ranch Estates homes since January. The Tustin Ranch Estates homes are larger, up to 6,300 square feet, compared to the 2,400- to 3,100-square-foot Seabourn residences.

Stowell made the point that the market is still very strong as long as you are looking in a particular location and a particular price range. n

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