“The Ultra Wealthy Are Riding Out the Market Chaos in Luxury Real Estate” (WSJ):
Despite a chill in the overall housing market, ultraluxury home sales in areas like New York, South Florida and Los Angeles are accelerating as the wealthy buyers bet on real estate’s long-term value. Since February, the number of homes sold for $10 million or more has surged in major markets nationwide, according to an exclusive analysis by The Wall Street Journal. Between Feb. 1 and May 1, sales at that price point in Palm Beach, Fla., surged 50% from the same period last year, while sales in Miami-Dade County jumped 48.5% year-over-year, according to public records and local multiple listing service data. In the luxury ski destination of Aspen, Colo., sales jumped 43.75% in that same period, followed by Los Angeles County at 29% and Manhattan at 21%.
When President Trump’s tariffs were first announced, some wealthy buyers tapped the brakes and backed out of deals. In recent weeks, however, real-estate observers have been surprised to see a wave of big-ticket sales across the country.
The largest was the $225 million sale of a residential compound in Naples, Fla., in late April, the country’s second-most expensive home sale ever recorded. The seller was tied to the DeGroote family of Canada, property records show. The same week, billionaire David Hoffmann paid $85 million for a waterfront property nearby.
Home buyers at lower price points, by contrast, are holding off on buying and selling amid the chaos, agents said. For Miami homes below $20 million, for example, listing prices have dropped 10% to 20% since the start of the trade war, said agent Danny Hertzberg of Coldwell Banker.
“The most bullish buyers seem to be the highest-net worth buyers,” said Hertzberg, who knows of at least three Miami homes in contract to sell for $40 million or more. “The rest of the market is soft—frozen in some aspects—whereas the top of the market is accelerating in the number of sales and prices.”
The estimates of construction costs don’t seem right:
Hoffmann, an activist investor, already owned a smaller home in Naples but was searching for a larger compound in the area for five years. “This wasn’t a spur of the moment thing,” he said. The $85 million house, which measures about 17,200 square feet with eight bedrooms, ticked all the boxes in terms of design, size, quality and location. He is also in contract to buy the adjacent property with a guesthouse, bringing the total purchase price to just over $100 million. The two properties had been listed for a combined $125 million.
Hoffmann said he has diverse investments, including a “significant” amount of money in the stock market, but isn’t worried about short-term fluctuations. Moreover, he felt he got a good deal on the Naples home, since it would cost about $110 million to build today.
Even at $1,000 per square foot, a 17,200-square-foot-house would cost only $17 million to build.
Especially in higher-end neighborhoods of South Florida, a physical house is seen as a depreciating asset that will require a bulldozing or a gut rehab after 20 years. In my brain, the only ways that it could make sense to consider such an asset an “investment” are (1) interest rates are near 0 percent and it is easy to get a 90-95 percent mortgage, (2) an expectation that the land underneath will become much more valuable. Interest rates are not close to 0 percent anymore. The only reason that land would rise dramatically in price is if rich Americans decide that they need to cluster together even more tightly.
(See the classic 1997 “A Long Run House Price Index: The Herengracht Index, 1628–1973” in which real estate doubled in value… over 345 years; “The Amsterdam rent index: The housing market and the economy, 1550–1850” (2012) is similarly discouraging regarding appreciation potential beyond whatever is happening in the larger economy; a 2002 paper by Gregory Clark (of The Son Also Rises fame) found that constant-quality rents actually did rise substantially in England between 1550 and 1909.)
Why should we care? Rich Americans control our political parties, especially the Democrats (The Nation). If the rich are concentrated in just a handful of neighborhoods they have less reason to care about what happens to the rest of us. It might be rational to support filling the U.S. with Tren de Aragua members if you are assured that you will never encounter one.
Some porn from the WSJ (the $51 million Palm Beach, Florida house that Bren Simon, widow of the real estate tycoon Mel Simon, recently bought):
“Are America’s rich people betting on the rich becoming more concentrated and isolated?”
Probably. But, thank God for them! Their property taxes are funding the local municipalities’ growing personnel expenses!
EtR: are you sure that increased concentration is good? If all of the rich people move to five towns those five towns get fat on property taxes and every other town starves! (I guess I can’t complain because our own tax rate in Palm Beach County has been going down as more rich people move into Palm Beach per se and build palaces.)
I disagree that super-rich buying real estate is an indicator of anything except of them being super rich and of real estate and so – called “property taxes” becoming major expense item even for moderately rich. Is continuing commercial success of Amazon, Costco and Walmart is an indicator of any middle class conspiracy?
The bar is definitely higher than 5 years ago. $2 mil used to be the division between the winners & losers. In today’s money, $20 mil is what’s going out of style.
I would take with a grain of salt anything the WSJ reports. It once was America’s premier business publication but the Murdock lads have tried their best to turn it into a somewhat more conservative version of NY Magazine with lots of self help and fashion pieces as well as expensive goodies — presumably to please the ladies out there. Today for example a thought provoking piece on the “navy blazer,” another on what women want, another what to do if you are feeling overwhelmed, etc. That plus the daily hit pieces on Elon, who presumably the editors see as a big threat, and daily verbiage from fossils from the Regan and Bush presidencies leave little space for business. The few articles that are business related typically omit key facts that might make the article somewhat coherent. Note Phil’s comments, above. I might speculate that about 80% of the publication is now produced by AI – but AI has an IQ of 130 and few Journal articles exhibit that level of intelligence. One might wonder why I write this screed here rather than in the comments section of the WSJ – but my comments pointing out flaws and incoherencies in Journal articles are typically blocked as “violating community standards” – a sensitivity to criticism suggesting that there is a lot of it out there.
“presumably to please the ladies out there”
Do any ladies read the WSJ? Do any ladies read? Or are they all on their i-Phones?
Looks like American men say that they read more than women:
> Men (58%) are more likely than women (53%) to say they read for work or school-related reasons.
https://www.pewresearch.org/internet/2012/04/04/part-2-the-general-reading-habits-of-americans/#7b42835f9c132b1cc4d19cd208dcb43a
Being on phones and reading may not be mutually exclusive ( from the same link):
> Across the board, people who use the internet and other digital devices – such as cell phones, tablet computers, and e-book readers – are more frequent readers than non-users for each of these purposes.
Women could read as much as men on an average back in 2018, but the numeracy scores for men is a bit more than women:
https://nces.ed.gov/pubs2018/2018164.pdf
I feel like with expensive houses, the rich are doing it less for investment purposes and more because they can. (With some obvious exceptions like the weird China/Canada expensive house thing) Owning expensive real estate seems to be both an excellent hedge against inflation, and tax-advantaged, though. With a billionaire real estate guy in the white house, seems unlikely to change.
It’s interesting, because many of the gilded age mansions built ~100 years ago became white elephants, with their heirs donating them to various other purposes than dwelling, or even just letting them rot. (Hearst Castle, Hyde Park, and many more https://en.wikipedia.org/wiki/List_of_Gilded_Age_mansions)
I guess a lot of those on the list which were demolished probably represent variously successful real estate investments, though.
I live under the pattern for FMY. I love all the 2-30 mil valued business jets coming and going. I’m a bit of a jet fiend. Trusty Flightradar 24 has helped me learn the names and I’m starting to recognize them by the engine sounds. When I’m ready to drop my own 30 mil, I’ll have a good sense of the fastest and quietest models available.
“Dr.” Phil, we are discussing how rich people are becoming more concentrated as far as their living situation is concerned. Did you even read the post? You just want to show off how rich you are, every chance you get, right? Oh look at me, I have so many mils, and so many jets I want to buy with them!
PF: your IP address suggests that you live in India. You might have missed that PhilH was not seriously contemplating purchasing a business jet. Also, “Dr. Phil” is Democrat Mike’s trademark moniker for me, not any other Phil or Philip!
PhilH: I am sure you have all the eclectic tastes of a rich dude, you don’t need to share with us all of them! It is because of people like you who only care about their expensive toys and ignore us common folks that we end up with MAGA type movements.
Hi PF, I was perhaps not clearly pointing out that a concentration (a shiver, a frenzy?) of billionaires not only leads to hundred-million dollar home sales, but it also seems to be correlated with a concentration of bizjets. Also, visiting Rocky Patel’s Burn in the Mercado shopping center in Naples on a Friday night would make any high-end luxury car lover swoon.