If no one buys this Bugatti Chiron for $2,998,000, will that hurt the sales of $90,000 Mercedes Benzes? Gideon says no.
I was belly-aching about the lack of high-end ($7M+) sales the other day to my friend* Chuck Royce, who certainly knows things, and he said “We lost 300,000 financial jobs and those buyers just aren’t there anymore”.
I won’t argue with the Voice of Royce, certainly the government-caused melt down of the housing industry, followed by the near collapse of the financial sector, took a terrible toll on jobs in the investment business. But I still think there’s more to this. After all, there are now PLENTY of young couples out there getting into bidding wars over $2M tear-downs, particularly in Riverside and Old Greenwich. It’s one of our busiest segments, and consider the money being spent: they’ll pay anywhere from $2M to $4M+, just for the land, then spend $2M-3M to build the dream house.
Take the folks who just paid $4,325,000 for the right to tear down 206 Shore Road, Old Greenwich: they will be all-in for around $7M when they’re done building. Does that sound like a weak market?
No, what’s going on here besides Royce’s observation of 300,000 eliminated jobs is that young buyers, more than ever, want brand new. That means if you dumped millions into a property 15 years ago, you may not get that money back. Maybe your $12,000,000 house is now only worth $7,000,000, but the buyers are there. Their tastes have changed, but they do exist!
We notice this loss of value most in our extreme high-end properties, but will that erosion inevitably drag all the other prices down? I say no. It’s like the Bugatti example above. Prices in the rarefied categories, whether it be art, property, or automobiles, don’t really have much influence on the rest of us.
*You qualify as my “friend” if you can reliably pick me out of a police line-up.
Greenwich Bored And Razed 
Are you so sure that it was only the government’s fault? Did you ask some of our greedy neighbors working in some of these financial institutions if that’s the whole truth?
Ay-Non:
Can’t disagree, Wall Street is always happy to “play ball” with big government. But government started that ball rolling by forcing lenders to relax their lending standards, then allowing tax-payer backed FannieMae to buy all these bad loans. Along comes Wall Street, which says, “Well lookie here, a whole bunch of government-insured loans, let’s bundle them and sell them!” The rest is history.
The tough market for high end does not impact the middle and low end until the high end pancakes into the ‘middle market’ e.g. $4-6.9MM. Then, it will drive prices down in the lower end. But you’re right: right now, people want new and in 50 shades of grey. Ten years from now, those 50 shades are going to go the way of harvest gold and avocado and shag rugs.
One example: 18 Chimney Corner Lane. Great property but house is a tear down even though it’s pretty high end finish circa 2000
Anon:
Quite so, although I would prefer the word “if”:
If the high-end pancakes into the middle market, then yes, things shall have taken a sinister turn.