20 July 2008
Sedona AZ Real Estate Market Watch
Luxury Home Market Finally Takes a Hit
Roy E. Grimm, PhD
Flying high above the din of the collapsing general housing and land markets since late 2005, million dollar-&- up home sales have been robust. Indeed, 2006 sales numbers exceeded those of record-setting 2005.* And, they became more expensive on a cost per square foot basis, rising from $352 to $375.
Odd as that seems given the performance of the rest of the market, it was consistent with what we’ve seen in luxury markets throughout much of the country. Folks in that price range generally pay cash and aren’t so concerned with credit crunches. Moreover these are often second or third or whatever homes so the buyers usually don’t have worry about selling the homestead in Michigan in order to buy in Sedona. And, even though prices have been rather stable, inventories rose significantly enough to give luxury buyers many more options and, thus, bargaining power.
2007 maintained that pace – that is, until the luxury home market flew into a wall in the second half of the year. Whereas 30 of those homes sold from January through June, only 12 sold from July through December. That’s a 60% drop.
So what’s been happening this year? So far, a pronounced “thunk!” Through the first half of 2008 we’ve seen only thirteen luxury homes sales. Not the fast starts we saw in 2007 (30 sales), 2006 (35 sales), 2005 (30 sales). Slow sales and historically high inventory (120 to 136 luxury homes on the market). Hardly an auspicious first half of the year for would-be sellers. For buyers, however, it’s a signal to swoop in for a bargain.
What’s to say that this is not just the beginning of a long-term decline in the luxury homes market? It could be. That depends, somewhat, on how far luxury home sellers want to swim upstream in the River of Denial as their counterparts in the general market did before realizing that the market had deserted them and dropped their prices to attract buyers. If luxury sellers recognize the realities of the market and bargain accordingly, we’ll have found the bottom of the market. From there we’ll see an upswing. If they’re stubborn about keeping their heads in the sand, they’ll be sitting on those same homes this time next year and we’ll have had a prolonged Buyer’s Market in luxury homes that will continue well into 2009.