Million-dollar home market shows some spark

This home in Boulder sold for $4.45 million in May, the most expensive home to close in the Denver area that month.

Take a poll at the bottom of this blog on whether you think the worst is over for high-end homes.

The million-dollar home market is not on fire, but the vast majority of seven-figure homes selling from Boulder to Douglas counties, are not being unloaded at fire-sale prices.

While the luxury homes remain the slowest moving part of the Denver-area housing market, and are no longer commanding record prices that thrilled sellers and builders during the market’s peak of four or five years ago – sellers appeared to have made a profit on the vast majority of the homes closed in May, indicates an analysis of every home sold by InsideRealEstateNews.com. The lone exception is Arapahoe County, where overall many luxury homes remain in a tailspin from those heady days when they sported prices soaring in the stratosphere.

Overall, buyers paid $63.4 million for 44 single-family detached homes in Denver, Boulder, Arapahoe, Douglas, Jefferson, Adams and Broomfield counties, based on Metrolist figures supplied to InsideRealEstateNews by independent broker Gary Bauer. Metrolist listed 55 homes in that price category, but 11 of them were double-counted, and Bauer removed them.

Luxury homes priced to market

In total, the homes were listed for $68.7 million. In other words, homes across the county sold for an average of 92.3 percent of the asking price.

The analysis included the price per square foot for each of the homes. And InsideRealEstateNews used public records to determine the previous sales price, to see whether the home had sold for a profit (exclusive of improvements.) Because many of the home sales were new homes, which either had not previously been sold – or a builder had bought a vacant lot or a small house that was razed, in which case the price was so low as to be misleading – InsideRealEstateNews used what is called the “Actual Value” of the home as a proxy for a previous sale. The Actual Value is what county assessors use to determined the assessed value of each home for property taxes.

Price per square foot

The analysis found that the average sales price per square foot for all of the homes was $334.58.  The lowest priced home by the metric was in Arapahoe County. It sold for $1.26 million, or $225.32 per square foot That home had previously sold for $1.795 million, records show, or $535,000 less than its latest sales price.

At the other end of the spectrum, the most expensive home in the area to sell, commanded a price of $4.45 million. That Boulder home also sold for the most on a per-square-foot basis, at $766.17 per square foot. If that home was removed from the mix, it dropped the overall average price per square foot by $10 to $324. However, that home did not fetch its asking price, a lofty $4.995 million. That means the buyer made $500,000 less than the list price.

And if you want to make money on your house, time does matter. A home in Littleton that was originally purchased for $575,000, sold in May for $1.15 million. The 1992 price, in inflation-adjusted dollars, equates to $894,172 in today’s dollars. However, some of the expensive homes were marketed as short sales, in which the bank was willing to accept less than the mortgage amount.

Lane Hornung, president and a founder of 8z Real Estate and COhomefinder (co-sponsors of this site), called the trend even before the numbers were crunched.

When you bought and location key

“I can tell you what the data is going to show,” Hornung said. “Whether a seller is going to make a profit is a function of time and location.” He said if a person bought during the peak years of 2005 to 2006, they probably are taking a loss. And certain neighborhoods around downtown Denver, as well as in Boulder, have held their values better than many suburban enclaves, he noted.

“Location is very important,” agreed Chris Mygatt, president of Coldwell Banker Colorado.

For the most part, people who don’t have to sell their seven-figure castles, do not, he said.

Spec home builders hammered

“I think most $1 million-home owners still do have some equity in their homes, unless they are builders who built on spec,” that is, without a buyer lined up, Mygatt said.

“Let’s say I owned a home that has lost $200,000 in value,” Mygatt said. “I am smart enough to know this is cyclical, and if I can wait, three, or four or five or six years, my home will likely come back to where it was, or beyond. Now, if we were in Las Vegas or Miami, or some other market where they built so many upper-end houses that there is no chance they will return to their old prices anytime soon, people are just giving them back to banks in droves. That is where you find the so-called deals.”

And Mygatt departs with some of his fellow Realtors, in that he doesn’t think that buyers of most $1 million- homes in the Denver area are getting great deals.

“Let’s say you buy a home in Cherry Creek North or Hilltop for $1.2 million, that previously sold for $1.9 million, you probably shouldn’t pat yourself on the back for making the deal of the century,” Mygatt said.”The home is probably worth…$1.2 million. Was it ever really worth $1.9 million? Probably not. And when you go to sell it, the price you get is going to calibrate around the $1.2 million, not the $1.9 million.”

Fraud drove up prices

Also, a number of those record-breaking prices of the go-go years, involved fraud. “Some of those were shady deals that Erin Toll (the former director of the Colorado Real Estate Division) went after,” Mygatt said.

But perhaps the best news is that many of those sham deals, and spec construction deals, have been taken back by their lenders and have been re-sold.

“What I think what that means is that we are starting with a clean-slate,” Mygatt said. “It would be fun to look back and say this is the baseline for a new start. Whether it is or not, I suspect it is so close to the baseline, that it will be immaterial.”

Edie Marks, of the Kentwood Co., who for decades has been selling some of the most expensive homes in the market, said “I sure hope we are getting to the bottom of all this. I think we are.”

That said, the well-heeled can still find relative bargains at the high-end, she said.

“We’re still seeing a lot of bank-owned properties out there,” Marks said. “There is one home in Cherry Hills that is bank-owned that was priced at $4.25 million and now the price has been dropped to $2.55 million. And I have another home in Hilltop that was priced at $2.8 million and now is going out at $1.7 million.”

Still a buyer’s market

Jack O’Connor, an owner of RE/MAX Professionals, said that that to look at the luxury market as simply $1 million and up, is too broad. “Really, you have a $1 million to $2 million market, in which you might be able to buy a home for 70 cents on the dollar, or in some cases even less,” he said. “When you get into the $4 million and up buyer, those buyers are not impacted by interest rates. They don’t need to worry if there is jumbo-financing available, because they typically pay cash, or can pay cash.”

And because deals are so many deals available for homes priced below $2 million, there is no point in constructing new homes in that price point, he said. “They might not be perfect, but you can get such good deals in the $1 million to $2 million range, there really is no point of building new product in that price range,” O’Connor said. While that means that existing homes won’t have to compete with newer homes, he said there is still more than enough inventory to exceed the current demand, which will keep it a buyer’s market.

And the luxury home market varies so greatly by geographic enclaves, based on the desirability of the neighborhood and the supply of unsold homes in the area, that it isn’t useful of talking about the unsold supply of homes at $1 million and more, he said. “Hilltop, for example, has maybe a 10-month supply of homes, and Castle Pines Village might have a 30-month supply,” he said.

O’Connor said as option-ARMs, which often were interest only, re-adjust in coming months – and if the owners are unable t0 refinance – that will drive up the supply of expensive homes, as owners who stretched to buy those homes – or no longer have the same income – will be returning their homes to their lenders. As the supply of unsold homes rise, prices will drop, he said. Still, he does not think that expensive home prices will fall off a cliff.

And, there is no doubt that the market for luxury homes is improved from a year ago. Sales and prices have recovered from the bottom, he said.

‘Some people talk about how every month of this year, we have sold more $1 million-plus homes than in the same month in 2009, and that is true,’ O’Connor said. “But 2009 was a truly awful year, so I’m not sure how meaningful that is. Two things drive the real estate market – interest rates and job stability. If you look at companies that traditionally had been hiring, like Qwest, that is not happening. I do not see the job creation happening that would require the hiring of more executives who could afford these homes.”

Fire sales not lighting market

Independent broker Bauer said that the InsideRealEstateNews‘ analysis dispels the notion held by many that the vast majority of expensive homes are being dumped at fire-sale prices.

“That is only true for the homes bought at the peak of the market, in the 2004 to 2006 time frame, and part of 2007,” Bauer said. “Also, I think the good news is that people are pricing the homes to the market. They are increasingly be priced to sell.”

He does think that people who buy now are getting “great deals,” especially considering that there are now more jumbo mortgages available at attractive interest rates. A year ago, financing for expensive homes was almost non-existent.

That said, Bauer is not convinced that there is enough job growth and demand for high-end houses to say the market is fully recovered.

“I think there could still be some more pain at the higher-end,” Bauer said.

Does that mean a buyer should wait?

“That depends,” Bauer said. “You have to ask yourself if you can time the market. Can I time the market? I don’t think so. I think if you find a home that you can afford and where you will be happy, and it fits your needs and the needs of your family, you should buy it.”

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If you want to see details and photos of  expensive homes for sale in Colorado, you might enjoy this Colorado-Luxury Homes site provided by COhomefinder.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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