Coldwell: High Net Worth Still Snapping Up Homes

U.S. mortgage rates are at four-year peaks and climbing, cooling a torrid housing market from five years of record sales, but high-end households are still pumping money into second homes with cash to spare for amenities and travel, according to Coldwell Banker.

More than a third of owners of houses valued over $1 million in states other than California -- where the cutoff is $2 million -- own second homes, according to the 2006 Coldwell Banker Previews International Luxury Survey. Another 35 percent are considering buying one.

"This market is hot because 43 percent of these people make over $500,000, and 70 percent of these people said that interest rates had no bearing on their purchases and no bearing on some of the leisure things they do," said Jim Gillespie, chief executive of Coldwell Banker Real Estate Corp.

Buyers in this category are typically younger baby boomers, the survey found. The second-home purchases are either for family use or for investment.

Coldwell Banker last year sold about $56 billion of homes worth at least $1 million, up from $35 billion in 2004 and $23 billion in 2003. The company did not provide an estimate of its luxury home sales pace so far this year.

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NOT IMMUNE

The sector is not immune to the overall slackening in housing, though.

"My sense is that even though these people are not sensitive to interest rates, that there is more inventory in every price range," Gillespie said.

Sixteen straight quarter-percentage-point interest-rate increases by the Federal Reserve, and the possibility of a 17th later in June, are taking the steam out of U.S. housing.

Home price gains are slowing after five years of double-digit increases and inventories of unsold homes are swelling.

Housing has been a key driver of U.S. economic growth.

The Fed has slowed the white-hot pace of housing, particularly purchases by speculators, as it aims to quell inflationary pressures. Housing-related spending on products and services is seen trailing off as a result.

On Friday, Pulte Homes Inc., the second-largest U.S. home builder, slashed its profit outlook, helping send building stocks to lows last seen in 2004. This was the latest evidence that rising interest rates and lofty home prices are crimping demand for housing.

But at the high end, spending plans appear intact. A majority of owners polled by Coldwell had or aim to have designer kitchens, high-tech entertainment systems and original artwork.

CONSERVATIVE THINKING

The most popular amenities in these luxury homes are security systems, professional landscaping, designer kitchens, in-ground swimming pools and hot tubs, based on the survey.

These results have been consistent with the prior two surveys, Gillespie said, showing that "these people are in a position that a lot of Americans aren't in, and they can afford to do these things."

Coldwell expects the second-home buying by high-end owners to stay strong as baby boomers plan for future retirement.

The National Association of Realtors and the Fed have said that second-home buying by investors, mainly by speculators, is a wild card for the economy. A sudden rush of sales from this group could weaken the housing market more than anticipated.

Speculators "are the people right now that are in trouble in Florida because of oversupply," Gillespie said of owners who bought mainly condos intending to sell at a quick profit. "If you're going to invest in real estate or stocks bonds or gold, don't be a flipper," he said. "You need to be a smart investor, and a smart investor does not buy to flip right away."

Eighty-four percent of respondents said they are moderate to low-risk investors. Their leading retirement holdings were individual stocks, mutual funds, real estate and bonds.

About 40 percent said their household income was between $200,000 and $500,000.

"Because of smart investments, equity in their homes and in some cases inheritances, luxury properties have become attainable for many Americans," Gillespie said.

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