Not even the richest U.S. metro areas are immune from the housing downturn.
Despite their glittering reputations, places such as Beverly Hills and Paradise Valley, Ariz., have seen their median home prices drop hard. But don't expect an Okie-style exodus of Ferraris and Range Rovers to cheaper neighborhoods any time soon. At the very top of the housing food chain, people are still buying—and spending—like it was 2005.
For super-rich buyers, both here and abroad, the credit crunch isn't much of a concern when buying a house because they have easy access to cash and debt. And even in the country's priciest markets, there aren't many houses worth $5 million or more, so demand nearly always outstrips supply.
Which means that even though housing market in states like California and Florida have been clobbered overall, certain exclusive enclaves remain unfazed.
For example, it was reported Apr. 6 that the oceanfront Palm Beach (Fla.) estate of the billionaire founder and chairman of Jones Apparel Group (JNY), Sidney Kimmel, had found a buyer at $81.5 million, just 24 days after being put on the market. If the sale closes, it will be the highest price ever paid in Palm Beach.
And in Beverly Hills, where house prices dropped 8.7% in the fourth quarter of 2007 compared with a year earlier, the 29-bedroom, 40-bath former home of newspaper tycoon William Randolph Hearst and actress Marion Davies is on the market for $165 million, the most expensive listing ever.
In early March, the 29-room townhouse once owned by the late publisher of Penthouse, Robert Guccione, on Manhattan's Upper East Side sold to Harbinger Capital Partners founder Philip Falcone for $49 million. What makes the sale even more interesting is that the property was listed at $29.99 million in 2003. This means that, despite the general housing malaise, the property sold for 66% more than its asking price five years ago.
"Demand [for luxury real estate] is remaining strong, and even if [prices in elite Zips are] going down they're not going down as much as the overall market," said Laurie Moore-Moore, founder of the Institute for Luxury Home Marketing in Dallas, which trains agents to work in the high-end international property market. "What it means is there's a segment of the population that can afford the price point, and those folks are continuing to buy."
BusinessWeek.com, with the help of Fiserv Lending Solutions, evaluated the performance of some of the nation's most elite Zip Codes. We ranked communities based on the relative expense of houses compared to their surrounding metro area (The top ranked community, Paradise Valley, Ariz., had a median home price of $1.8 million, or 7.5 times the median for the Phoenix metro area). Of the 25 high-end enclaves on the list, all but one location performed better than its metropolitan areas in terms of 2007 home price appreciation.
Still, prices in most of the high-end communities on our list, including Beverly Hills; Vero Beach, Fla.; and La Jolla in San Diego, experienced declines in the fourth quarter of 2007 compared with the same period a year earlier, according to Fiserv. Even so, the strength of the multimillion-dollar mansions at the top of the market appears to be tempering what might otherwise have been worse.
Median home prices in Santa Barbara, on California's Pacific Coast, fell 10% in the fourth quarter of 2007 compared with the same period a year earlier. But prices in the Santa Barbara-Santa Maria-Goleta metro area took a 20.6% nosedive during the same period.
Pricey markets in the Northeast, which saw more moderate price jumps during the housing boom, appear to be doing better. Selling prices in upscale Greenwich, Conn., rose 4.7% while prices in its local Bridgeport-Stamford-Norwalk metro area stayed flat.
In the fashionable Boston suburb of Brookline, Mass., prices jumped 10% during the year that ended in the fourth quarter, 2007, even as prices fell 2.7% in the Boston-Quincy metro area.
Manhattan, one of the world's wealthiest property markets, didn't make the list because data were not available from Fiserv, which counts single-family home transactions (New York is primarily a co-op and condo market). In Manhattan's tight market, the median sales price in the first quarter rose 13.2%, to a record $945,276 compared with the first quarter last year, according a report by Prudential Douglas Elliman.
"High-end activity has boomed," said Greg Heym, chief economist for Brown Harris Stevens, a residential brokerage firm in Manhattan. "We're not saying it's recession-proof; we're not saying it will never go down. But it takes longer for the fundamentals to change."
Wealthy Zip Codes are generally less vulnerable to a serious slide because they have fewer subprime borrowers and, often, a tight supply of homes. But most communities have a mix of houses, including some cookie-cutter developments. The mega-rich are choosy and look for fabulous, distinctive properties that have lasting value even in markets that have been weakened by investor speculation and overstretched buyers losing homes to foreclosure.
"I would never say any property is immune to market forces," says Chad Roffers, president of SKY Sotheby's International Realty in Sarasota, Fla. "But a condo or single-family home that more looks like a commodity is seeing a greater correction in price. The unique, one-of-a-kind properties that are difficult to replace are bringing top dollar or setting record prices."
Christopher Hain, a real estate agent with Ramsey-Shilling Associates in the Hollywood Hills, says homes of $10 million or more are in short supply in the Los Angeles area. In Beverly Hills, house prices at the lower end of the market—that is, $1 million or so—are much weaker than the top of the market, he says.
"I'm working on three developments: $5 million homes in Brentwood, $6 million homes in Beverly Hills, and $27 million homes in Bel Air," he said. "Which one am I most confident in? The $27 million development. I know they're going to sell because there will be nothing compared to it."
See BusinessWeek.com's slide show to find out which metro areas have the greatest median home price gaps.