The luxury home market feels a bit like boom times.
“There’s a lot of demand, a little supply, and as a result, prices are being pushed up,” said David Girling, an agent with Newport Beach-based HÔM Sotheby’s International Realty.
Girling and his father, Bing Girling, specialize in sales of homes in Newport Beach and its Balboa Island enclave.
“It feels a lot like 2006 and 2007,” Girling said.
The Girlings’ recent $11 million sale of 1604 S. Bay Front on Balboa Island is indicative of today’s luxury market: The six-bedroom, six-bath home saw a quick sale (six weeks from listing to closing), drew multiple offers, and went for a price higher than it would likely have fetched even a year ago.
The lack of inventory has driven the market back into the seller’s lane.
The question is: When will more listings hit the market?
Many luxury homeowners had been holding off on selling their homes until they could get higher prices.
Lift on Listings
That appears to be the trend now, and local real estate agents expect more sellers to list their multimillion-dollar homes in the months ahead.
Coastal homes have led the comeback on pricing.
Getting a fix on pricing trends in the luxury segment can be tricky, given the range available in OC.
Newport Beach, with various upscale enclaves spread through its generally high-end market, offers some perspective.
The Girlings track home prices in 25 Newport Beach neighborhoods via their Newport Beach Home Price Index, which shows an average price of $2.25 million in 2012, up nearly 12% from a year earlier. There were 573 sales last year, up about 29%, and the highest annual total since 2003.
Prices remain about 26% below their peak in 2007, according to the index.
David Girling is quick to note a longer trend: Homes in the city have appreciated 100% since 2000.
The index also shows average time on market shortening up quickly. It’s taking about 4.7 months to sell a home in Newport Beach, down from eight or nine months a year ago.
“It’s pretty incredible given what we’ve seen over the last four years,” Girling said.
That action has reached the high-end. The second half of 2012 saw 84 homes priced $4 million or more sold in Orange County, up from 54 in the first half of the year, according to Peter Hernandez, president of Beverly Hills-based Teles Properties Inc., which has an office in Newport Beach.
The trend continued into this year.
January saw 10 sales in the $4 million-and-up segment, almost twice the pace a year earlier.
“People are excited about real estate again,” Hernandez said.
Luxury home sales got a slight lift at the end of 2012 from gift-home sales. Some wealthy buyers had feared that the estate-tax exclusion on gifts to family members would revert to $1 million from $5 million as part of the “fiscal cliff” deal. That didn’t happen, but the possibility dangled throughout November and December, as elected officials in Washington, D.C., negotiated a deal.
That spurred a lot of big gifts to family members, including some luxury homes.
Luxury real estate agents expect to sell more homes this year, even without the boost from gift-home sales.
The recovering economy and an upbeat consumer have lured buyers back into the market.
Even “spec” buyers—those who buy a home as an investment or to fix up and sell—have returned to the market, after sitting on the sidelines for about five years.
Perhaps the biggest boost to the housing market has been historically low interest rates.
“Rates have helped us to get where we are in this recovery,” David Girling said.
“Rates are the wildcard.”
A large increase would erode the buyer’s purchasing power, and it may prompt buyers to buy sooner rather than later.
Local agents are hopeful interest rates will hold throughout the year.
Cash Buyers
Another type of buyer that’s been out in force is the cash buyer.
All of the Girlings’ sales last year were cash, and all of the buyers were local.
“People have cash, and they want to put it into real estate,” he said. “We had our best year last year.”
The number of homes bought with cash in OC rose 28.9% to 10,760 homes, according to San Diego-based DataQuick. That’s higher than the state average of 15.9%.
That trend appears to be a factor for luxury homes, too.
Cash buyers make up about 35% of Surterre Properties Inc. sales.
Surterre also saw an uptick in international sales. Most of the international home buyers purchase homes with cash. The international buyer makes up about 1% to 2% of Surterre’s business.
“The international market is getting even stronger,” said Gary Legrand, president of Surterre Properties, based in Newport Beach.
Buyers from Asia, especially China, have been snapping up Orange County properties, mostly in Newport Beach and Newport Coast.
With more cash offers, there are likely to be fewer “contingent offers” going forward.
That’s when a home buyer agrees to buy a home contingent on selling their home.
“In a hot market like what we’re in right now, there’s not a reason for a seller to look at a contingent offer,” said Jeff Culbertson, executive vice president of the Southwest region for Coldwell Banker Residential Brokerage.
“It’s a great time to be a homeowner who wants to sell,” Culbertson said.
That has many buyers frustrated.
They’ve made several offers on homes, more than the asking price, and they keep getting outbid by someone else.
More inventory will help.
“We’ve been counseling patience to our buyers,” Culbertson said.
