luxury homes for sale

The volume of luxury homes for sale continues to grow at an alarming rate. The inevitable consequence of this much “luxury,” inventory is falling prices. After two years of dropping sales volumes, the credit crunch is finally having an effect on the high end prices, with substantial price reductions being seen across the world.

Agents have long argued that the price of luxury real estate at the top of the market was inviolate and could never reduce. Hmmm. How about $5 million taken off the price of a luxury home on Laguna Beach; a 78% discount on Las Vegas luxury condos; or $20 million taken off a Park Avenue penthouse? All of which I have seen in the last few weeks.

Crunch time has arrived, and I suspect these sort of reductions will have an effect. Whether they are large enough to give a boost to the market is open to debate, and only time will tell. If it does, you can certainly expect a lot of newspaper headlines to the effect that the financial crisis is over because house prices are rising again. What they will actually mean is that median house prices are rising if more sales in the luxury segment are closing.

The French, German and Japanese governments are claiming to have left recession now with a return to growth. Personally, I do not see pumping 25% of the nation’s GDP into the economy for six months to create a 0.3% increase in growth over a disastrous previous quarter as leaving recession and the underlying fundamentals have not changed one whit. Except that the auto makers now have more money with which to reward the board members.

The underlying fundamentals of the real estate sector have not changed significantly either – credit is still tight, prices are falling, inventory is climbing and the amount of property now owned either by a bank which is being government supported or directly owned by the government is quite staggering. US states have taken to bailing out smaller luxury developments all over the country, and in some case these are being turned over to student housing and affordable accommodation, but, by and large, these developments are being sat on in the hope of a quick recovery and therefore an increase in tax revenue.

The very top of the market is not being bailed out in this fashion. It would be pretty hard for a government entity to be able to justify buying a Park Avenue apartment. I don’t know the exact figures, due to the fact that so many properties are being taken off the market and re-listed. Suffice to say, the amount of luxury homes for sale is considerably higher than anyone is admitting to, and the figures have been badly skewed by the amount of re-listings going on.