What Housing Crisis?

There isn't much positive news in the housing sector. Largely as a result of the subprime mortgage mess, the number of homes that slipped into foreclosure proceedings in 2007 jumped 70 percent from the previous year, according to RealtyTrac. The National Association of Home Builders this week announced that new-home sales dropped 29 percent in 2007, the industry's biggest drop in four decades. In addition to those troubling stats, there are the ever-increasing costs of energy and recession worries to be concerned with.

So why are ultrahigh-end home prices still rising, with some prices reaching up to an astronomical $175 million? It's a simple matter of supply and demand, say brokers from hot markets like Manhattan, the Hamptons, Palm Beach and both ends of California. While there's a national glut of McMansions in the $500,000 and up range, there's a shortage of trophy properties on the market and an increasing number of wealthy foreign buyers from Asia and Europe looking to capitalize on the weak U.S. dollar.

Those struggling to pay their monthly mortgage or buy a first home may be envious or appalled, but according to market data from DataQuick, sales for homes costing $5 million and above climbed 31 percent in the first quarter of 2007 compared to the same quarter in 2006. Sales of Manhattan apartments costing $10 million or more tripled in 2007, according to the real-estate company Prudential Douglas Elliman. How rich are these buyers? The brokers NEWSWEEK spoke to say many of their high-end sales represent the purchase of a second, third or fourth home.

"The rich are even richer than ever before and the very wealthy are pouring more money into residential real estate," says Laurie Moore-Moore, the founder of the Dallas-based Institute for Luxury Home Marketing, a membership and training group for luxury-real-estate agents. While Europeans have always invested in American properties, Moore-Moore says new buyers are increasingly from Brazil, Russia, India and China.

Shlomi Reuveni, executive vice president and senior managing director of Manhattan-based Brown Harris Stevens Select (an affiliate of Christie's Great Estates) says that the dollar exchange is turning New York into a residential playground for the internationally wealthy. "Affluent clientele are not about price," Reuveni says. "With the highest caliber properties, supply is limited, and cost is not something that determines their purchase."

It helps that there are more wealthy people in the world than ever before. According to Merrill Lynch's World Wealth report published in June 2007, the number of "ultra-high net worth" individuals--those with $30 million or more--increased by 11.3 percent. Also, there are now 9.5 million millionaires worldwide, an 8.3 percent jump from the previous report issued in June 2006.