Luxury homes: Do dueling governor mansions point to “Mansion Cliff”?

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.

Related Articles

Part II: Million Dollar Markdowns coming to a neighborhood near you?

Follow-up to Part I: Housing slump hits Cambridge: 1 in 3 single family homes selling below assessed value

As graphed in the blog post above, homes selling below assessed value are increasingly common, but what was newsworthy about the
Boston Globe’s story last week is the magnitude of how far below.
During the first six months of 2008, two homes in Cambridge sold for
approximately $2 million below their original asking price.  More
significantly, both sold for more than $1 million below their assessed value based
on our analysis of MLS data shown below.

Can you guess the address of these two properties in Cambridge?  

Original asking price:  $5,300,000
List price before offer accepted:  $3,700,000
Price reduction Original vs list price:  $1,600,000
Final sales price:  $3,100,000
Price reduction below last asking price:  $600,000
$2,200,000 Savings vs original asking price
% Savings vs original asking price:  42%
Assessed value:  $4,122,100 (2007)
Saved vs assessed value:  $1,022,100
Sales price / town assessment:  75%
% below assessed value:  25%
Guess how many days on market?

Are you seeing Million Dollar Markdowns in your local housing, elsewhere in Massachusetts, the US (or world)?

Original asking price:  $5,500,000
List price before offer accepted:  $3,995,000
Price reduction Original vs list price:  $1,505,000
Final sales price:  $3,650,000
Price reduction below last asking price:  $345,000
Savings vs original asking price:  $1,850,000
% Savings vs original asking price:  34%
Assessed value:  $4,917,400 (2008)
Saved vs assessed value:  $1,267,400
Sales price / town assessment:  74%
% below assessed value:  26%
Guess how many days on market?

As reported by the Boston Globe, The Real Estate Cafe has monitored "Million Dollar
Markdowns
" — luxury homes which have sold at least $1 million below
their
original asking price — on and offer during the past. See links in
blog posts from 2007:  Sweetest Deals of 2006 and MIT Professor: Housing prices could decline another 20%.

As McMansions become less desirable and the housing market drags the economy in recession, do you think "Million Dollar Markdowns" will become more common in your local housing market?  Are owners already putting them on the market now to minimize their losses?  Will the expiration of estate tax cuts enacted in 2001 cause the luxury housing market to collapse, or will Congress and the new president extend the tax cuts permanently?

MicroPoll:  Would you like to attend a "Bubble Hour" to discuss homes selling for below assessed value in Greater Boston?  (See one click survey & results.)

Carpe Diem:  Hire The Real Estate Cafe to conduct original research like this, and save money on your next real estate transcation by taking advantage of these limited time offers

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