There is some data suggesting the country's housing market appears to be splitting in two, albeit into two very unequal parts. While we are still awaiting the recovery for the majority of the market, according to Zillow the much smaller luxury market has seen improvements. The 1.5 percent of the market that consists of luxury homes like we have in Palm Beach County (think pools, spas, outdoor kitchen, screening rooms, massive master suites, waterfront) have seen a small turnaround. Since February prices of $1 million-plus properties have risen 0.7 percent since February 2010, while prices for $1 million-under homes have decreased 1.5 percent. Historically these two market segments have moved in tandem.
This split is due in part to cash-rich foreign buyers who think American real estate is currently undervalued. They don't need mortgages and thus are not hamstrung by the difficulty of getting a mortgage. In Florida in 2007 foreign buyers accounted for 10 percent of sales; in 2010 they made up 33 percent of sales. So while this news might not matter much for the majority of the country, it does matter for us. The concept of the market bottoming out needs to be asked on a more regional and then price-conscious level and right now it appears that the luxury market is going to have an earlier recovery.
To create an analogy for all of the fashionistas out there, consider the recent sale of Missoni goods at Target. Shoppers lined up to get a shot at owning a designer, luxury good for a more affordable price. The shelves were cleared within hours and the website crashed. We are still in a recession and normally no one would line up to buy Target clothes but the rules changed when it was a luxury brand.
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