California, New York, Florida: It's no big surprise that this luxury-home trifecta topped the list of states with the most homes valued at $1 million or more in 2005. The rich may get richer and the homes pricier, but the lineup of the biggest luxury real estate markets changes little from year to year.
What makes these states perennial winners? The obvious answers: lifestyle and jobs. Earthquakes, fires, and smog have done little to deter wealthy buyers from California's mild weather and striking coastline, and the state's cities are technology and entertainment industry hubs. Nothing beats New York for cultural offerings and opportunities in the financial world, or Florida for miles of prime vacation land.
Having a lot of homes in general also may give the top three an edge over other states. California has the highest population in the U.S. (36 million), followed by Texas (23.5 million), New York (19 million), and Florida (18 million). In 2005, California had 619,170 $1 million-plus housing units, or 8.76% of its total homes. New York had 165,641, or 4.21%, and Florida had 102,010 or 2.08%. But California also has the highest percentage of total homes valued at $1 million or above, followed by Washington, D.C. (7.67%), Hawaii (6.64%), and Connecticut (4.41%).
Midwest Playing Catch-up
The other states rounding out the top 10 largest luxury home markets are New Jersey, Massachusetts, Illinois, Connecticut, Virginia, Maryland, and Washington—all states with or near major U.S. cities, and almost all, with the exception of Illinois, along the nation's two coasts.
"There was the expectation here a few years ago that the coast had seen most of their increase in prices, and estimates were that the middle part of the U.S. was going to catch up a bit," says John Karevoll, an analyst at real estate research firm DataQuick. "That hasn't happened yet, and it's surprised a lot of analysts."
In fact, the finite amount of waterfront space in coastal states has pushed prices up at the ultra-luxury end, says Anthony Armstrong of the Dallas-based Institute for Luxury Home Marketing. The Institute estimates that home sales at the $5 million-and-above price rose 11% in 2006, compared to a 8.4% decline in overall housing market sales. Between 1999 and 2005, the Institute says sales of homes for more than $1 million skyrocketed over 500%.
Wall Street Bonuses a Boon
The most expensive home sold in 2006 was a 63-acre estate with a 10,000-square-foot mansion in Alpine, N.J., purchased by Richard Kurtz, chief executive of Englewood Cliffs (N.J.)-based real estate developer Kamson Corp., for $58 million. At least nine other buyers shelled out $28 million or more for a U.S. property last year.
Strong corporate profits and a global commodities boom helped boost fortunes in 2006—the number of billionaires in the world grew 18%, to 793. If Wall Street bonuses are any indication, 2007 is set to be an even more prosperous year (see BusinessWeek.com, 12/20/06, "Homes to Blow Your Bonus On").
If the Street's winning streak continues, New York could even steal California's first-place spot in the next few years. Between 2000 and 2005, New York saw home sales at the $1 million-plus level rise 531.7%, the greatest increase among the U.S. states.
Empire State Edge
"As an ultra-luxury market, New York is passing California big time," says Miki Naftali, chief executive of privately held Elad Properties, which owns the landmark Plaza Hotel in New York. Last year, Elad converted part of the Plaza into condominiums, which start at $6.9 million for a 1,200-square-foot one bedroom.
Depending on how you look at it, New York is already the No. 1 state for luxury homes, thanks to Manhattan's generous supply. Of the 1,000 most expensive homes on the market right now, New York has the most of any state, with 240 homes equaling $4.5 billion in value, according to Unique Homes magazine, based in Princeton, N.J.
Florida has 234 of the country's most expensive homes, which range in price from $10 million to $155 million, and California has 205.
"If you were to take all the luxury properties in San Francisco and L.A., it wouldn't match up with Manhattan," says Nick Antonicello, Unique Homes' director of sales. "Peter Minuet [the Dutchman who is said to have bought Manhattan from Native Americans for $24] still made the best real estate deal of all time."
Mountain Peak Homes
Interestingly, the two most expensive homes for sale in the U.S. are not in New York, California, or Florida, but in Montana—a $155 million spec home called the "Pinnacle"—and Aspen, Colo.—a Saudi prince's $135 million ranch. Is this a sign that other states are catching up with traditional luxury-home hot spots?
"The affluent market is growing, and not everyone wants to live in a condo or pay premium prices," says Armstrong. "Instead, many have turned to 'spillover' markets that were more inland and offer unique lifestyle choices."
This trend will continue, Armstrong predicts, but he says it is not likely that states like Colorado, Montana, and Arizona will see anything close to the number of luxury properties in New York, California, or Florida anytime soon. The competition for space has also produced a trend to build up, and condo hotels have an increasingly popular, low-maintenance choice among the affluent (see BusinessWeek.com, 12/4/06, "Checking Into Condo-Hotels").
How Now, Dow Jones?
Can anything topple the luxury-home super states? More than anything else, high-end home markets are linked inexorably with the stock market's performance, especially in New York and in Florida, which absorbs much of the Northeast's wealth in the form of second homes.
Lately, investors have been nervous that still-sluggish home values will further weaken the troubled subprime mortgage market, and vice versa. If the pressure on stocks is severe enough, Moody's Economy.com housing economist Celia Chen believes luxury home sales may not be a strong as many are predicting. "But I don't think it's going to change that much," she says.
Other than the stock market, little seems to affect luxury home buyers, especially at the very high end. "These markets are by category and geography a world by themselves, they dance to their own tune," says DataQuick's Karevoll.
So when you don't have to worry about swings in the economy, the slowdown in the housing market, or qualifying for a mortgage under tighter lending standards, what do you worry about? For ultra-wealthy home shoppers, today's most pressing dilemma may be: California, New York—or both?
Click here to see the biggest luxury real estate markets in the U.S.
Correction: This story originally misidentified the buyer of the most expensive home sold in 2006.