Stocks Tank, Luxury Homes Volume Down 50%- Week Over Week

So the stock market is crashing to the worst week ever (I think due to off books Enron style account, see 07 warning).

So how will that affect the housing market for luxury homes? Don’t care? Then don’t read this.

I had a theory- albeit obvious – that those buying luxury homes over $1 Million in Arlington¬†and the DC area would come to a halt since these buyers most likely “had” their money in stocks.

Who is going to unload their stocks down 25-45% to buy a house? With a 20-25% down payment (5%-10% down is much harder, if not impossible, now) that can make that $2 million property feel like $2.2M overnight, and without another wing on the home.

My data-pull results (not regurgitated data):
I pulled up homes in the DC area from $1 Million to $4 Million that went under contract (more reliable than solds) for a 4 day period and compared it to the one and two weeks before.

  • 9/21/2008-9/24/2008 26 under contract
  • 9/28/2008-10/1/2008 25 under contract
  • 10/5/2008-10/8/2008 13 under contract

For homes from $800,000 to $1,000,000:

  • 9/21/2008-9/24/2008 24 under contract
  • 9/28/2008-10/1/2008 25 under contract
  • 10/5/2008-10/8/2008 12 under contract

That doesn’t look good, to say the least.
Will this become a longer term trend in the higher end luxury market? Dunno.

What if you are high end buyer?
Know the stats, know that 50% of your competition just flew the coop. This allows you to be more aggressive. As for waiting, that is obviously your call, I don’t believe in market timing.
Heck it could get MUCH worse, or things might stabilize and the buyers might come back.

What if you are a high end seller?
Read above, but know that it isn’t your agent slacking off. Also if you do get an offer… man, you have to have some serious cohones to try and get much better. Sure next week might look better, but you really never know.

If you have any specific questions about a marketplace or price bracket, let me know and I can run some specific numbers.

If you know somebody looking at high end homes, forward them this email and make sure they subscribe to Blog.FranklyRealty.com .

-Written by Frank Borges LL0SA Broker FranklyRealty.com

Image is a photo of a $3.34 M property sold previously by FranklyRealty.com
Please report typoes

  • 10
  • October
  • 2008

11 Responses to “Stocks Tank, Luxury Homes Volume Down 50%- Week Over Week”

  1. kathynaw says:

    FYI, You have the same sold luxury home photo on your blog and realty sites. Proof I’m not a luxury home buyer, there’s a $100,000 disparity in the prices between the two sites. I assume only people who can’t fathom why you spend $3 million on a house nor have the funds would notice.

  2. FRANK LL0SA Va Broker- BLOG.FranklyRealty.com says:

    Good catch. Kinda scary, but impressive. I have made the correction. Also there was a $1,478 seller subsidy.

    So does the stock market drop affect you?

  3. Missy Caulk Ann Arbor Realtor Ann Arbor Real Estate: says:

    Frank,
    I only wish I had known I would have cashed in stocks and retirement funds and bought some of these low, priced homes in good neighborhoods, right now I am loosing on everything, so I guess I’ll sit tight, hope i don’t regret it.

  4. Tamara Inzunza, Alexandria VA Real Estate Agent says:

    Only goes to show you that we NEED the first-time buyers to add fuel to this market. I think we’ll start to see more foreclosures in the luxury homes over the coming months…

  5. Sweth says:

    Bad stats, Frank… you can’t compare week-on-week numbers without accounting for seasonal variation, e.g. by comparing the percentage change between a given week and the same week the previous year vs. the percentage change between another week and the corresponding week the previous year.

    I suspect that even w/ the seasonal variation, the numbers would show a drop-off, but it’s still a necessary step; you can’t draw any meaningful conclusions from the numbers as you present them.

    (Also, out of curiosity, why do you only look at those sub-periods of the weeks in question?)

  6. FRANK LL0SA Va Broker- BLOG.FranklyRealty.com says:

    Hey Sweth,
    Instead of knocking it, please show me the light with a more accurate blog post. I will link to it.

    I can’t imagine a week to week variation down 50% having anything to do with seasonal (yes, maybe as we go into this season there might be a 5-10% drop, and therefore my 50% number is more like 40%)

    It is a huge time commitment to gather data (not just regurgitate generic reports from MRIS). So I was willing to give it two hours and that is that. Gotta sell real estate and go to law school.

    Yes it would be more ideal to pull the Sun-Wed of years before, to see if there happens to be a 50% drop in the second week of Oct. In case people like to put in offers (not closings, but offers) at the end of the month. I doubt it, but I love being proven wrong.

    Please do. ;-)

    Frank

  7. Sweth says:

    It’s not a matter of proving you wrong; it’s a matter of clarifying the difference between statistics and information. You’re presenting some stats, but without defining the problem more clearly and then making sure that you are using the right approach, there’s no useful info to be gained from them–it’s POSSIBLE that your conclusions are true, but it’s just as possible that they aren’t.

    I didn’t do the math myself because I didn’t have any particular question that I needed answered by doing the math, and like you, I’ve got lots of other things on my plate.

    If you’d like, I’ll try to make some assumptions about the question that you’re trying to answer, and pull the relevant MRIS data and post something showing how to more meaningfully approach it. The math involved is actually not very time-consuming at all, so hopefully I’ll get a chance to do that this week. (Gotta file taxes by Wed. first, though…) One thing you could do to help would be to explain why you chose those sub-week windows, vs. comparing full weeks.

  8. Foster says:

    Hey Frank,

    Just wanted to say thank you for your blog! Using tips from it that we implemented, we were able to get the full list price for our house including no closing help for the buyer. In fact, we got 2 identical offers on the same day last week.

    We hired a stager like you recommended and our realtor took some great pictures. But we spent a lot of time this summer making the house look beautiful, painting some neutral colors and fixing up some old projects. Our house has never looked better.

    So much of my research for homes has been done using franklymls.com – it’s a great tool! If you ever start selling homes in the Baltimore area, let me know! I would make sure to recommend people to you! I love how technologically advanced you are, and the creative things you are doing. I thought on numerous occasions, “if only Frank sold homes in the Baltimore area!”

    Here’s our listing, you can see from the pictures how great our house looked! http://franklymls.com/CR6868745

    Now we have to find a house!

    Thanks!

  9. FRANK LL0SA Va Broker- BLOG.FranklyRealty.com says:

    Hey Foster,
    Thanks! And for those out there wonder, no I didn’t pay him and I’m not related to him!

    Thanks

    Frank

  10. Anonymous says:

    Hi Frank, thanks for the great blog and a very useful, searcheable website. I am relocating from LA to DC, and hope to find some great bargain(s) in 2009, getting some $ 1 million homes for 1/2 (I can always hope, right?).

    Of of the previous comments, one from Sweth, questions the viability of you using week-to-week data to prove the downward direction of luxury home market. I happen to think that (any) sales is momentum based, and week-to-week data is a lot more indicative than same-time-last year data (or other commonly used data). So I definitely agree with your use of such data.

    And I will add my 2 cents. If I were to buy a $ 1 million home today, and pay down the first 20%, borrow the rest 80%. Assuming I have excellent credit and no other loans, my monthly payment would be $ 5K, plus $2K for tax, insurance, HOA & maintenance (I used 6.5% jumbo rate). This $7K/month obligation will require $ 25K a month gross income, or $ 300K/year, to support it.

    How many DC (or nationwide) jobs pay $ 300K a year? And how many banks are still willing to offer no-income requirement loans?

    And getting the first $ 200-250K for down payment is a real stretch now, since most people's 401K have evaporated, and/or their existing homes/equities also evaporated.

    Sure, there are some already rich people with enough liquid money to buy (without borrowing). But they probably have nicer homes, in nicer neighborhoods, or have way better ways to invest their money than a sinking asset.

    Too bad sellers and their listing agents are still drinking toxic Cool-Aid, thinking someone with lots of cash or making $ 300K/year will come to their rescue. I will tell you this, I don't make $ 300K/year, but even I am smart enough not to rescue anyone with my hard-earn money, and I expect a lot more intelligence in my $300K earning brethens.

    What I think will happen? I think banks will take over almost all of these assets, sit on them for a long while (because bankers still get their paychecks regardless), and get the government to write a check to wipe out all these non-performing loans (dollar for dollar). And it's too bad us taxpayers will eventually and inevitably pay.

    Don't believe me, look at Japan and how it never recovered from its real estate bubble (even after government wrote checks to banks). And just think, Japanese save way more than us Americans and still can't save themselves, so how can Americans save ourselves, now that the world no longer trust our credit worthiness (especially in real estate).

    Sorry for the long post. And thanks Frank for providing a great service.

  11. FRANK LL0SA Va Broker- BLOG.FranklyRealty.com says:

    Thanks Anonymous.

    As for 50% off, depends what your starting date is and your location. 50% off from a 2005 price in Manassas is a piece of cake.

    Thanks for backing up my back of the envelope blog and stats. I really wish those (Sweth) that knock it, will follow up with the “correct” way as I thought he proposed that he would.

    Yes it takes time. This isn’t just spitting out numbers.

    Contact me if you are ready.

    Frank

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