Luxury Palm Beach Real Estate BUST

Time for 'reality check': Palm Beach feels the downturn after some huge sales in '08


By JEFF OSTROWSKI
Palm Beach Post
Sunday, March 15, 2009

PALM BEACH — After defying gravity for years, the venerable mansion market on the island has seen a "reality check," according to the president of the Palm Beach Board of Realtors.

The median price of single-family homes sold in Palm Beach from October through December fell to $2.7 million, down 20 percent from $3.4 million in the fourth quarter of 2007, according to a Palm Beach Postanalysis of The Evans Report, prepared by attorney Les Evans.

And only 16 sales closed during the period, down from 25 deals in the fourth quarter of 2007.

Realtors acknowledge that the record-breaking real estate party of early 2008 is over. One who asked not to be named described the fourth quarter as "horrible" - and the first quarter of this year is shaping up to be even slower.

Only four single-family homes sold in Palm Beach from Jan. 1 through early March, according to the Palm Beach County property appraiser. A dozen sold during the same period last year.
"People are holding on to their money now," said Clare O'Keeffe, a real estate broker and president of the Palm Beach Board of Realtors. "Nobody knows what's happening in the stock market or the economy."
While O'Keeffe says the mansion market has taken just a temporary breather, others are less optimistic.
Doug Kass, a hedge fund manager who owns a home in Palm Beach, says the island's housing market has ground to a halt. He blames the combination of the global financial collapse and the Bernie Madoff scam, which hit hard on the island.

"I think the numbers are appreciably worse than (Evans') report shows," Kass said.
"Things couldn't get worse. You have the economy eroding. You have the stock market in disarray. And you have a major fraud that has cut a wide swath through our community."

Sudden turn in late '08

What a difference a few months make. The Palm Beach mansion market was so hot during the first seven months of 2008 that the full-year results look buoyant despite the end-of-year slump. Palm Beach saw a number of blockbuster sales, including an $81.5 million deal for Jones Apparel Group founder Sidney Kimmel's manse in April and $95 million for an estate owned by billionaire Donald Trump in July.
However, The Post's analysis of Evans' numbers shows that during the fourth quarter, even Palm Beach wasn't immune from the global financial crisis and cratering stock market. Still, Evans dismissed the fourth-quarter figures as irrelevant.
"I don't like to look at quarterly numbers," Evans said. "One quarter tends to skew it a little."
The downward trend held for the third quarter, too. Despite Trump's record-setting sale in July, the median home price in Palm Beach fell to $3.05 million in the second half of 2008, down from $3.39 million in the second half of 2007.
And seven of the 42 houses that sold in the second half of 2008 went for less than the seller had paid in the previous transaction.

The Palm Beach condo market also slowed in 2008, according to Evans. The number of sales fell to 196 in 2008 from 245 in 2007, a 20 percent drop. And the median price fell to $600,000 from $825,000, a 27 percent decline.
The decline in Palm Beach prices mirrored the fall in the broader market. For all of Palm Beach County, the median price of a single-family home plunged 27 percent from the fourth quarter of 2007 to the fourth quarter of 2008, according to the Florida Association of Realtors.
Publicly, Realtors pointed to a variety of reasons the Palm Beach market slowed. The fourth quarter is a dead time anyway, they said, and some buyers didn't want to commit so close to the presidential election.
Privately, though, several acknowledge that the downturn was deeper than they expected.

Many say luxury real estate no longer is the haven it once was.

"People used to think the rich could make it through these difficult times because they had plenty of money," said Scott Custer, chief executive of Raleigh, N.C.-based RBC Bank, which has seven offices in Palm Beach County. "But nobody's going unscathed through this downturn."
Evans' report isn't the first sign of cooling in the once-hot mansion market. The home at 756 Slope Trail in Palm Beach sold last month for $5.96 million after being marketed for as much as $10.3 million, although Evans points out that the sale price of $1,000 a square foot isn't too shabby.
In January, a 23,000-square-foot manse in Boca Raton sold for $12.9 million, after seller Dru Schmitt originally listed it for $24.9 million.
And mansion developer Frank McKinney said in late February that he has put on hold plans for two oceanfront estates in Manalapan until he sells a just-finished manse that's on the market for $29 million.

"It's a pretty scary time - I know I'm scared," McKinney said.

During Palm Beach's long boom, entry-level homes priced at less than $2 million were scarce, said Realtor John Pinson. No more.

Suddenly single-family homes are available for less than $1 million in Palm Beach.

"That's something, to have properties priced under $1 million," Pinson said. "It's been a long time since that was the case."