Million-dollar homes suddenly lose luster

By Thomas A. Fogarty
USA Today

The dizzying six-year run-up in the sale of $1 million-plus homes is over.

In 2001, the United States recorded 14,150 home sales valued at $1 million or more, down 10.5 percent from 2000, according to an analysis by market-tracker DataQuick for USA Today.

The drop in high-end sales comes as the nation's housing market as a whole has resisted the ravages of recession. When numbers are final, the estimated 6.1 million total home sales for the year will reflect an annual increase of about 2 percent, driven by long-term mortgage interest rates hovering near 7 percent all year.

"The high-end behaves in a manner all to itself," says DataQuick analyst John Karevoll.

The decline in high-end home sales was steeper in the first half of the year, and the market appeared to be picking up by December, he says.

David Lereah, chief economist for the National Association of Realtors, says stock market performance explains both the yearly decline in high-end sales and the surge in recent months.

When the bull market ended 22 months ago, wealthy home buyers began to pull back from the housing market as they watched wealth evaporate. With the stock market still struggling to rebound, Lereah says, high-end homes have become more attractive than stocks as an investment.

The story of seven-figure home sales — sometimes eight figures — is a California tale. Prices on modest digs shoot into the stratosphere if the property is within sight or smell of the Pacific Ocean. As a result, 71 percent of the nation's $1 million-plus homes were in California.

Last year's decline in high-end home sales hit Northern California hard. Sales of $1 million-plus dropped 20 percent in the nine-county San Francisco Bay Area versus a decline of just 2 percent in the six southern counties that encompass Los Angeles and San Diego, DataQuick says.

John Markley, president of Pacific Bay Homes, says Sept. 11 terrorism "sent the high end of the market for a loop."