Same state, opposing parties. Two “governor mansions” for sale, one former governor, one current. One expired after 416 days, the other canceled after 268 days. Now, like running for reelection, both are relisted and SURPRISINGLY, both are asking less than their tax assessments; in one case, nearly a half million below it’s assessed value.
Does that mean that either 15 to 20 room mansion will sell at a loss? Unlikely, unlike millions of foreclosures and short sales since the housing bubble collapsed nationwide. One mansion is priced more than 25 times it’s purchase price in 1976 (just $150,000), and the other nearly three times it’s price in 1989 ($563K).
Though similar in many ways, the same buyer or appraiser would be unlikely to consider the two 6,800 square foot grand dames “comps” because of the difference in location and other factors. Still, the dueling mansions offer a teachable moment which goes beyond the luxury housing market and real estate to questions about tax policy and commonwealth.
HISTORIC CONTEXT: THEN vs NOW
When former Governor Weld and his ex-wife (the current owner) bought 28 Fayerweather Street in Cambridge in February 1976, interest rates were over 10% and the tax on the highest wage earners was 70%. In contrast to double digit interest rates during the stagflation of the late 1970’s / early 1980’s, interest rates now have been are at record lows and the Fed intends to keep them there until unemployment falls.
Still, both mansions failed to sell the first time around and asking prices are now more than $270,000 below their tax assessments in a housing market that is reportedly rising. They are not alone. Like the Weld’s home, eighteen other luxury listings priced over $2.85 million across Massachusetts are being offered $450,000 or more BELOW their assessed value. In fact, half are offering $1 million or more off their assessed value. That raises a serious question:
In the final days before the fiscal cliff, is that what it takes to attract a luxury home buyer, particularly a CASH buyer who can still close before the end of the year? Or is a more systemic change taking place?
To shed light on those questions, The Real Estate Cafe analyzed luxury listings priced over $2.85 Million dollars across Massachusetts between November 21 and December 18, 2012. To our surprise, we learned that four of the nine homes priced $1M or more below their tax assessment are already under agreement; and one closed last week (12/10/12) at $1.6 million below it’s assessed value, and a STUNNING 52% or $6.7 million off it’s original asking price: $12.95 million in May 2010.
IS THERE A MANSION CLIFF?
Does that collapse in value, plus the high profile visibility of two former Governor’s mansions asking a quarter of a million to a half million dollars below their tax assessments, suggest that a trend is quietly unfolding under the fiscal cliff, a “Mansion Cliff” as CNBC first described it five months ago?
Further, do “million dollar markdowns” (M$M) on active listings and pending reflect real losses for sellers and savings for buyers, or are they merely a reflection of once bloated price expectations in the luxury property class? Is the luxury housing market poised for a fall, just months after the Wall Street Journal launched a new section called “Mansion” and a luxury listing agent in New York said “$80 million is the new $20 million“?
Could there be a better poster child for the Mansion Cliff than Villa Rockledge, “a legendary Laguana Beach mansion which spills over the edge of a cliff”? Originally asking $34.5 million, auction bids on the property, which has been in the National Register of Historic Places since 1994, begin at $10.5 million.
PRIVATE WEALTH vs COMMONWEALTH
Beyond questions about plunging luxury home price expectations, is a far more important question: How will politicians reorder priorities and tax policies which have generated a new class of superwealthy households who own more than one mansion (like at least one governor and recent presidential candidate who could not remember how many mansions he owned) to provide affordable housing for “generation broke” and aging babyboomers on fixed incomes?
In his blog post yesterday, Boston Globe real estate blogger Scott Van Voorhis began to open that discussion by saying Governor Patrick should try living in the transit-oriented housing his administration is promoting as a key component of the state’s affordable housing policy. That challenge sounds similar to one Governor Cory Booker recently accepted to live on food stamps for a week.
Will we see a new era of populist politicians who live like the rest of us, rather than multiple mansion-owning politicians of any political persuasion? Unlikely, but it’s not a bad place to draw a link between the financial implications of political decisions and broader discussion about private wealth and the common good. And if you read London’s Financial Times, you may think this is EXACTLY the kind of conversation we should be having the week before Christmas, just ask the Pope.
It going to be an interesting conversation, particularly as the fiscal cliff and Mansion Cliff, if there is one, unfold.