After a year on the market, the seller of a six-bedroom, 20,000-square-foot home in Weston, Mass., slashed the asking price by $8.1 million. The new home, located near Boston, first entered the market at $18 million, then fell to $13.9 million and now stands at $9.9 million.
“It won’t be reduced anymore,” said Sophia Camann, the listing agent with Hammond Residential Real Estate in Greater Boston.
Camann said the significant price reduction on the luxury home is a common trend in the market these days. Sellers had to lower prices over the last year because buyers weren’t willing to pay as much for these homes.
The trend is evident in luxury markets nationwide. Homes priced above $3 million in some parts of San Francisco also saw significant markdowns last year. The price reductions in the high-end market could indicate future softening in the median-priced market or in some instances could be a sign the homes previously were overvalued.
Economists often see softness in the high-end market as an indicator of future softening in the lower to middle housing markets. However, Nicolas Retsinas, director of Harvard’s Joint Center for Housing Studies, hasn’t identified any indicators that will happen in the Boston-area market.
“It does reflect somewhat of a different perception of where the market is and where it might be going,” Retsinas said.
However, he doesn’t think the lower to middle markets will see softening prices any time soon. The fundamentals of these markets are still very strong with low interest rates on fixed mortgages holding up buyer demand.
One factor contributing to softer luxury home prices is a stronger stock market, Retsinas said. Multimillion-dollar home buyers often buy for investment reasons. Some buyers are choosing stocks over real estate.
“A growing expectation on the part of the buyer is that now might not be the right time to buy for investment reasons,” he said.
Another way to interpret the million-dollar markdowns is that the lower prices are just a correction from previous overvaluations. Demand for multimillion-dollar homes surged in the dot-com heyday, and that drove up prices.
For example, a recent Harvard study noted a house between Harvard and Porter Squares in Cambridge, Mass., sold for about $400,000 in 1993 and was listed at $1.5 million in the summer of 2003. This kind of price appreciation is a “wake-up call” that draws attention to escalating home prices, the study’s author Zhu Xiao Di wrote.
The 2000 Census identified Cambridge, Mass., as having the highest percentage of single-family, owner-occupied homes valued at $1 million or more. About 11.6 percent, or one out of eight homes in Cambridge are worth more than $1 million.
But while the number of multimillion-dollar listings in Greater Boston increased in 2003, the homes generally sat on the market longer and sold at much lower prices than in previous years. Regional MLS data showed 141 listings in Greater Boston priced over $1 million in the fourth quarter 2002 with and average 88 days on market. That compares with 173 listings in the same price range during the fourth quarter 2003 with average 108 days on market.
Bill Wendel, broker of the Real Estate Café in Cambridge, Mass., compiled luxury home sale data from the region’s MLS to figure out where the buyer deals are located.
He found a home in Lincoln, Mass., which sold for $2.1 million, or 56 percent below its $4.75 million price just two years before. Another home in nearby Wellesley sold for $2.6 million last year, about 37 percent off its $4.15 million price in 2002. A house in Winchester is now on the market for $1 million, 56 percent below the original $2.3 million asking price in July 2003.
Wendel said the “Let’s make a deal” season for home buyers in the $2 million and up market really started heating up in the fall.
“It started about Halloween 2003. That’s when I began to see some of these properties selling at about 25 percent off or more,” he said.
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