Lifestyle Draws Homebuyers in Luxury Market

COACHELLA VALLEY, CA—While the housing sector recovery has been slow and steady, the luxury-home market is recovering more rapidly in some markets. In fact, in the Coachella Valley area of California, luxury-home sales—defined as sales priced at $700,000+—have increased by 53% in the last 12 months while sales of homes under $300,000 are down 6.5% during the same period, according to Market Watch LLC's desert report. GlobeSt.com spoke with Bill Bone, founder and CEO of the Sunrise Co., a residential and country-club community developer whose Toscana Country Club community in Palm Desert is enjoying great success, about the luxury market's health and why it was able to remain above water during the recession.

GlobeSt.com: Why is the luxury home market faring so well at a time when the country is still in the midst of economic recovery?

Bone: Basically, it's a matter of supply and demand. During the last big expansion in the economy before the recession started, there was huge overbuilding in entry-level housing, but not in luxury housing. We and other developers generally build luxury homes on a small scale all over the country. So we started out without a lot of supply. On the demand side, people who are buying luxury are generally successful, mature and affluent. They may have pulled back during the recession on investments, but now that they've survived and have more confidence in the future, they have come through the recession and are OK financially. They were never unemployed; they may have had businesses with setbacks, and their businesses aren't booming, but they're doing OK. This is a different buyer profile from the entry-level or move-up market.

GlobeSt.com: What does this say about the more moderately priced home market?

Bone: Recovery depends on the type of product. Housing for a typical working person, either entry-level or move-up as a primary residence, is a whole other housing market. It got overbuilt, and there was unemployment. There's a tendency to oversupply lower-priced homes in those boom times, whereas luxury and resort housing have always been controlled in boom times.

GlobeSt.com: Similarly, how does this affect the multifamily market, if at all?

Bone: The recovery in the luxury housing market isn't affecting the multifamily market. It's not the buyer profile of those to whom we're selling homes. A lot of people moved from homeownership into the multifamily market during this downturn. They borrowed way too much money to make the payments, and a lot of purchases shouldn't have happened. But this is a totally different buyer profile. The apartment market in most cities in the US is strong and healthy because not a lot of inventory was added in the last 10 years, and the demand has been good.

GlobeSt.com: What is the draw of the desert to those interested in luxury homes?

Bone: The number-one reason people come to the desert is the weather. It's sunny 330-something days of the year, it rains maybe 3 inches a year on average, and there's low humidity. People from Southern California come to the desert because it's not overcast like along the coast, and it's warmer. And people come here from climates that are not as nice, where they have colder winter weather.

But in addition to that, it's a fun place to be, it's not crowded, there's not high density and the streets are wide. You can drive 50 mph on the surface streets; it's easy to get around since you're five to 10 minutes away from everything. There's great shopping, golf, and dining; you can lie in the sun and read a book; and it's a second-home vacation place.

GlobeSt.com: What does it take to be successful selling homes in the luxury market?

Bone: Standing out. Trying to figure out who your buyer profile is and attracting the types of activities they like to participate in. People in this market say the best friends they have are the people they've met in the last five to 10 years because they have common interests. The activities draw them in, and then if they're attracted to that then they buy a house.

GlobeSt.com: What are your final thoughts about the luxury market?

Bone: The luxury-housing market is doing OK. It's not on fire, but it's healthy. There's not excess supply, so there's not a lot of panic. Prices are good. It didn't suffer distress, and that's why it recovered sooner—it never had those problems to overcome.