Consider foreclosure-ravaged Detroit. In the historic
Green Acres district, a haven for hipsters, a pristine, three
-bedroom brick Tudor recently sold for $6,000 — about
what a buyer would have paid during the Great
Depression.Yet just 15 miles away, in the posh suburban enclave of
Birmingham, bidding wars are back. Multimillion-dollar
mansions are selling quickly. Sales this August were up
21% from the previous year. The country club has ended
its stealth discounts on new memberships. And Main
Street's retail storefronts are full."We're getting more showings, more offers and more sales," says Ronnie Keating, a real estate agent with
Sotheby's International.Think of this housing market as bipolar. In the luxury
sector, the recession is a memory; sales and prices are
rising. Everywhere else, the market is moving sideways
or getting worse.In the housing market inhabited by most Americans,
prices have fallen 30% or more since the peak in 2007.
That's a steeper decline than during the Depression.
Some people have had their homes on the market for a
year without a single offer.Almost a quarter of American homeowners owe more on their house than it's worth. Another quarter have less than
20% equity. About half of homeowners couldn't get a
mortgage if they applied today, says Paul Dales, senior
U.S. economist for Capital Economics. Then, there is the other housing market, occupied by1.5% of the U.S. population, according to Zillow.com.
Here, houses have outdoor kitchens and in-home spas,
his-and-her boudoirs and closets the size of starter
homes. This market is not local but global, with
international buyers bidding in cash. And the gyrations of
the stock market are cause for conversation, not cutting
expenses. In this land of luxury properties, the Great Recession seems over. Prices of $1 million-plus properties have risen 0.7% since February, according to Zillow. Prices of houses under $1
million have fallen more than 1.5%.Normally, these two segments of the housing market rise and fall together. Now, they're
moving in opposite directions."Luxury is the best performing segment of the housing market right now," says Zillow.com
chief economist Stan Humphries.After every recession since World War II, housing has led the economic recovery. Not this
time. The renewed vitality in the comparatively small market for luxury homes is not enough to power a full-blown recovery.
This bifurcation in the market is yet another reason Michelle Meyer, chief economist at Bank of America Merrill Lynch, says her housing outlook is "increasingly downbeat." The phenomenon is not limited to real estate. You can see the same split elsewhere in the economy. Sales at Saks vs.Walmart. Pay on Wall Street vs. Main Street. Corporate profits
vs. family balance sheets. The divide also is making credit a perk of the rich. Mortgage rates are the lowest in decades. But what good are absurdly cheap rates if you can't get a mortgage?
Banks aren't granting credit to anyone "who even has a smudge on their application," says Jonathan Miller, founder of real estate consulting firm Miller Samuel. Applications for new mortgages are at 10-year lows.
Across the U.S., prices on high-end homes fell after the subprime crash in the fall of 2008.The price on the $25 million mansion became $20 million, then $15 million. Such"bargains" are pushing luxury buyers to commit to more deals.There are other factors, too. In Detroit, a recovering auto industry is helping propel highend sales. All those car executives who helped turn around the auto industry used to rent homes. Now they are using their performance bonuses to buy.Wall Street's recovery has brought back the market for mansions in the Hamptons, on Long Island, where the number of real estate closings has returned to the 2007 level, and for luxury co-ops in New York City. And because of social-network riches in Silicon Valley,
twice as many homes have sold for $5 million or more this year than last.
But in the other housing market, an apartment tower built in 2007 in San Jose, Calif.,recently converted to all-rental. The building had not sold a single unit.In Miami, a city that exemplifies the foreclosure epidemic, idle cranes dot the skyline.Unemployment shot up again this summer from 12% to 14%, a level not seen since the energy crisis in 1973. There are so many two-bedroom condos in gated communities with golf courses, private pools and jogging paths that you can pick one up for $25,000, 66%
off the price five years ago. But luxury condos priced at $1 million or more are selling as rapidly as they did during the boom.
"In the 20 years that I have been in South Florida real estate, I have never seen a greater divide between those who have and those who have not," says Peter Zalewski, founder of the real estate firm Condo Vultures.
One big factor in the divide in the real estate world is foreign cash. For international buyers, U.S. real estate is the new undervalued asset, the new fire sale, and foreigners are big buyers of luxury properties. International clients bought $82 billion worth of U.S. residential real estate last year, up from $66 billion in 2009. In states like Florida,
international buyers account for a third of purchases, up from 10% in 2007.
"Luxury properties are drawing buyers from all over the world," says CoreLogic's chief economist, Mark Fleming.
That's true even in such seemingly all-American enclaves as Detroit. Step off a plane at the city's futuristic new airport and the internationalization of the Motor City is obvious. All the signs — as well as the announcements on the public address system — are in both Chinese and English.
In the middle of the terminal sits a five-star Westin Hotel, the better to serve the global executive class that jets in and out as the U.S. auto industry regains its footing. Many of them are buying in Birmingham, Mich.,, where home values are up 3.1% this year, according to Zillow.com.
In Birmingham, store owners say business is as good as it was during the boom years last decade. Chasta Fase, who owns Old World Olive Press, a boutique shop that sells $30 bottles of olive oil from around the world, says business "has been just awesome" since she opened in November. And since April, she says, customers have been spending more
than ever.
Real estate agent Keating says the same is happening to her sales. In June, she sold a lakefront mansion in Birmingham to a Russian entrepreneur. He had purchased a local steel company that he plans to turn around.
"They're coming from all over," says Keating, who for the past 30 years has sold most of the car barons their homes, from Roger Smith, former CEO of General Motors, to former Chrysler CEO Bob Nardelli. "I don't know who any of them are anymore."Copyright 2011 The Associated Press.
