A New York Times article entitled “Billionaires Beware This Bubble” reports that Worth Magazine’s cover story this month “makes a convincing case that there may be a bubble on the extremely high end of the market.” While overly optimistic resort developers believe that the rising number of wealthy households will offset downward pressure felt in other price ranges, MIT Economist William Wheaton argues that resort buyers will substitute “the next mountain or beach or lake” in search of lower prices, and Christopher Mayer of the Columbia Business School says that supply will “outstrip demand, depressing prices.”
Falling high-end prices are not limited to resort communities. In a March 2005 article on their Luxury Housing Affordability Index, Business Week reported that “Luxury housing became significantly more affordable in Boston and Chicago, where prices fell a little over 10%; in Miami, down 6%; and Washington, D.C., down about 7%.”
A year earlier on Valentine’s Day 2004, The Real Estate Cafe released it’s own study entitled “Sweetest Deals of 2003: The Year of the Million Dollar Markdown.” At that time, only 50 properties in the MLS had ever been marked down by $1 million dollars in Greater Boston and 30 of them occurred in 2003. That price correction helped trigger a comeback and record setting pace for luxury homes in the first quarter of 2004.
What’s happening now in the multi-million dollar price range in Greater Boston?
Our sense is that the supply of multi-million dollar homes continues to rise as the demand remains relatively flat (see graph above through 2003) causing downward pressure on prices. How far down? Ask us after Halloween, that’s when most of the million dollar markdowns took place two years ago.
The NYTimes article puts the prospect of losing real estate wealth in perspective with some statistics and a parable about personal happiness. First, “6.6 million Americans 65 and older – 22 percent of all older beneficiaries – have no income other than Social Security. The average monthly benefit for retirees is about $955.” Then, in a touching tale of “diminished – yet satisfying – expectations,” a former world traveler, now retired, told the Times, “For 75 cents I can ride down to the airport, walk around the international terminal, and watch all the people headed for their planes. For me, that’s enough of a travel fix.”
While that simple soul is not a billionaire or a casualty of the real estate bubble, his contentment reflects the wisdom of one of Boston’s favorite sons, Henry David Thoreau, who once said, “That man is richest whose pleasures are cheapest.” That’s a comforting perspective our real estate obsessed culture may have forgotten.