U.S. house prices have plunged by nearly a third since 2006, and homeownership rates are falling at the fastest pace since the Great Depression.
The good news? Two key measures now suggest it's an excellent time to buy a house, either to live in for the long term or for investment income (but not for a quick flip). First, the nation's ratio of house prices to yearly rents is nearly restored to its prebubble average. Second, when mortgage rates are taken into consideration, houses are the most affordable they have been in decades.
Two of the silliest mantras during the real-estate bubble were that a house is the best investment you will ever make and that a renter "throws money down the drain." Whether buying is a better deal than renting isn't a stagnant fact but a changing condition that depends on the relationship between prices and rents, the cost of financing and other factors.
But the math is turning in buyers' favor. Stock-oriented folks can think of a house's price/rent ratio as akin to a stock's price/earnings ratio, in that it compares the cost of an asset with the money the asset is capable of generating. For investors, a lower ratio suggests more income for the price. For prospective homeowners, a lower ratio makes owning more attractive than renting, all else equal.
Nationwide, the ratio of home prices to yearly rents is 11.3, down from 18.5 at the peak of the bubble, according to Moody's Analytics. The average from 1989 to 2003 was about 10, so valuations aren't quite back to normal.
But for most home buyers, mortgage rates are a key determinant of their total costs. Rates are so low now that houses in many markets look like bargains, even if price/rent ratios aren't hitting new lows. The 30-year mortgage rate rose to 4.12% this week from a record low of 3.94% last week, Freddie Mac said Thursday. (The rates assume 0.8% in prepaid interest, or "points.") The latest rate is still less than half the average since 1971.
As a result, house payments are more affordable than they have been in decades. The National Association of Realtors Housing Affordability Index hit 183.7 in August, near its record high in data going back to 1970. The index's historic average is roughly 120. A reading of 100 would mean that a median-income family with a 20% down payment can afford a mortgage on a median-price home. So today's buyers can afford handsome houses—but prudent ones might opt for moderate houses with skimpy payments.
Tuesday, October 25, 2011
It's Time to Buy That House
From the Wall St Journal
Wednesday, October 5, 2011
Buying a Home is a safer bet than buying Gold
Homeowners Can’t Get Enough (Of Buying Homes)
Believe it or not, 57% of current homeowners said owning a home is among the best long-term investments they could make – even more than buying gold and putting cash under a mattress (go figure). If you think about it, that’s a bold statement considering how many people have lost their homes to foreclosure thus far. As a matter of fact, 80% of these folks say they want to buy another house in the future. But wait, there’s more. When we broke down this stat by age, we found out that an astonishing 69% of current homeowners age 55 years old or older (we’re talking retired or almost retired Baby boomers here) plan to buy another home. Must be something about that homebuying rush that they can’t get enough of, eh?
Buying A Home Ain’t No Walk In The Park
Most housing markets may be “offering” a blue light special on real estate all year long, but times have changed. The home buying process isn’t easy anymore.
Hands down, the biggest barrier to being a homeowners is saving up for a down payment (though this isn’t necessary a bad thing ’cause you should be putting at least 20% down. Letting people buy with zero down was one of many things that got us into this mess of a housing crisis). This especially rang true for Millennials (18-34 year olds) – 62% said this was among the biggest hurdles that they faced in trying to buy a home. On the flip side, qualifying for a mortgage and having a poor credit history were a bigger concern among Gen X’ers (35-54 year olds).
Tuesday, September 20, 2011
Rate on 30-year mortgage falls to record 4.09 pct.
From the Denver Post
WASHINGTON—Fixed mortgage rates fell to the lowest level in six decades for the second straight week. But few Americans can take advantage of the historically low rates.
Freddie Mac said Thursday that the average rate on the 30-year fixed mortgage fell to 4.09 percent this week, down from 4.12 percent. That's the lowest rate seen since 1951.
The average rate on the 15-year mortgage, a popular refinancing option, fell to 3.30 percent from 3.33 percent. Economists say it is likely the lowest rate on the 15-year ever.
Mortgage rates tend to track the yield on the 10-year Treasury note. Worries over Europe's debt crisis are pushing investors to shift money into safe Treasurys, forcing the yield lower.
Over the past year, the average rate on the 30-year fixed mortgage has been below 5 percent for all but two weeks. That compares with five years ago, when the average 30-year fixed rate was near 6.5 percent. A decade ago, it exceeded 8 percent.
Still, cheap mortgage rates haven't helped home sales. Sales of new homes are on pace for the worst year on records dating back a half-century. The pace of re-sales is shaping up to be the worst in 14 years.
Many Americans are in no position to buy or refinance. High unemployment, scant wage gains and large debt loads have kept them away.
Others can't qualify. Banks are insisting on higher credit scores and 20 percent down payments for first-time buyers. Some homeowners have too little equity invested in their homes to meet loan requirements.
Most people must also pay extra fees to get the low mortgage rates. Those fees are known as points, with one point equaling 1 percent of the total loan amount.
The average fees for the 30-year held steady at 0.7 point. Fees paid on 15-year fixed loans and both 5-year and one-year adjustable rate loans were all at 0.6 point.
Once fees are factored in, the average rate on the 30-year loan rises from 4.09 percent to 4.25 percent, Freddie Mac said.
A drop in mortgage rates could provide some help to the economy if more people could refinance. The Obama administration is looking at expanding a government program to help more eligible homeowners refinance. When people refinance at lower rates, they pay less interest on their loans and have more money to spend.
But many homeowners with good jobs and stable finances have already refinanced in the past year. The average rate on the 30-year fixed loan fell to 4.17 percent last November, and to 4.15 percent last month. Both were previous lows.
Homeowners typically pay a few thousand dollars in closing costs when they refinance. To refinance again, most experts say rates would need to fall an additional 1 percentage point to make it worthwhile.
To calculate average mortgage rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each week.
The average rate on a five-year adjustable-rate mortgage rose to 2.99 percent. That's higher than last week's 2.96 percent, the lowest records dating to January 2005 and the sixth straight week of record lows for this type of loan.
The average rate for the one-year adjustable-rate mortgage fell to 2.81 percent from 2.84 percent. That's the lowest on records going back to 1984.
Wednesday, September 7, 2011
Ever Vail approaches key step
From the Vail Daily
The economy hasn't magically turned around enough for Vail Resorts to break ground on its $1 billion Ever Vail project, but the company hasn't changed its intent to move the project forward as quickly as possible.
About 50 town of Vail meetings later, Vail Resorts Development Co. is still trucking along with its five development applications relating to the proposed Ever Vail project. The applications include rezoning and master plan amendments.
The company and the town of Vail will reach an important milestone Sept. 20 when discussions are scheduled to begin about the development agreement, a time when negotiations between the town and the resort company are expected to heat up around issues like parking and economic impacts.
The town isn't likely to approve any of the five applications without first working on the development agreement.
“I think getting into the (development agreement) discussions sooner than later will facilitate the entire approval process,” Councilman Andy Daly said at the council's Aug. 16 meeting. The town of Vail first saw the Ever Vail project in 2007, proving that the time it takes for a development of this size and scale to move through town approvals is lengthy.
Vail Resorts knew it would be time consuming but the company never backed down, even as the national economy crashed in 2008 and local construction and real estate industries took a nose dive along with it.
The resort company wants to get its approvals in place, even as the stock market continues on the roller coaster ride of recent weeks and local real estate inventory remains high.
Kristin Kenney Williams, spokeswoman for Vail Resorts Development Co., said the company's confidence in an economic turnaround lies in the fact that the company remains committed to getting its town of Vail approvals for the project.
“The economy will turn around some day; the real estate market will come back,” Kenney Williams said. “And when you see how long and how challenging it is, especially with a project the size of Ever Vail, to get your entitlements — we're already in year three — we could be behind the curve of other resort communities that also heavily depend on redevelopment.”
Economic recovery needed
The Ever Vail application includes plans to build a gondola from West Lionshead to Eagle's Nest, an underground mountain operations facility, 670 public parking spaces, 102 hotel rooms, on-site employee housing, a specialty grocery store, a live music venue, a transit center, deed-restricted and free-market condominiums, and Vail Recreation District space. The project would be built on a 12-acre site in West Lionshead and would require the demolition of the office buildings there now.
The project would also mean the South Frontage Road, which curves through West Lionshead between the Ritz Carlton Residences and the current Vail shop yard, would be realigned so it remains straight and parallel to Interstate 70 all the way through the town of Vail from west to east.
That important step would be the first phase of the project, Chief Operating Officer and Senior Vice President for Vail Resorts Development Co. Alex Iskenderian told the Vail Town Council at its last meeting.
At this point, that phase wouldn't happen until the spring of 2013 at the earliest, he said.
“It's very much reliant on what the economy does, what the real estate market does, how quickly we can sell through the existing inventory that exists in Vail right now — the significant, high-end real estate inventory that exists in Vail right now,” Iskenderian said.
The Colorado Department of Transportation hasn't officially approved the South Frontage Road realignment as of yet, either, but Kenney Williams said the indication is that the department will support it.
Town of Vail Community Development Director George Ruther said the relocation of the Frontage Road will be a major milestone in the eyes of the town. That step would be the indicator that the company is ready to break ground on the next phase of the project, also signifying the company's confidence in the overall economy, he said.
If the Frontage Road is realigned in the spring of 2013, the earliest the company would begin building other phases of the project, such as the underground maintenance facility or the hotel and parking components, would be the spring of 2014, Iskenderian said. The reason the company hasn't pursued the final CDOT approvals is because there's a two-year life span on the Frontage Road realignment approval and Vail Resorts isn't ready for that clock to start ticking, he said.
With the development agreement process about to begin, the clock will begin ticking on the project's five application approvals, however. Kenney Williams is still hopeful the approvals could happen before the end of the year, and Ruther said he can't foresee anymore delays.
“I think everyone is getting a good understanding of what the project is,” Ruther said. “Now it really comes down to discussions in the developer agreement.”
She points to the success of Solaris, the Ritz-Carlton Residences in Vail and the Four Seasons as proof that Vail visitors want what's new — the town had record sales tax revenues at times throughout the winter and the resort broke skier visit records, too.
“That idea of continuing to reinvent and reinvest in ourselves is key to a successful resort community like Vail,” Kenney Williams said. “The market certainly isn't back and the economy is still where it is, and that's why we can't commit to when this will break ground — we're committing to get this project approved so that we're ready.”
The economy hasn't magically turned around enough for Vail Resorts to break ground on its $1 billion Ever Vail project, but the company hasn't changed its intent to move the project forward as quickly as possible.
About 50 town of Vail meetings later, Vail Resorts Development Co. is still trucking along with its five development applications relating to the proposed Ever Vail project. The applications include rezoning and master plan amendments.
The company and the town of Vail will reach an important milestone Sept. 20 when discussions are scheduled to begin about the development agreement, a time when negotiations between the town and the resort company are expected to heat up around issues like parking and economic impacts.
The town isn't likely to approve any of the five applications without first working on the development agreement.
“I think getting into the (development agreement) discussions sooner than later will facilitate the entire approval process,” Councilman Andy Daly said at the council's Aug. 16 meeting. The town of Vail first saw the Ever Vail project in 2007, proving that the time it takes for a development of this size and scale to move through town approvals is lengthy.
Vail Resorts knew it would be time consuming but the company never backed down, even as the national economy crashed in 2008 and local construction and real estate industries took a nose dive along with it.
The resort company wants to get its approvals in place, even as the stock market continues on the roller coaster ride of recent weeks and local real estate inventory remains high.
Kristin Kenney Williams, spokeswoman for Vail Resorts Development Co., said the company's confidence in an economic turnaround lies in the fact that the company remains committed to getting its town of Vail approvals for the project.
“The economy will turn around some day; the real estate market will come back,” Kenney Williams said. “And when you see how long and how challenging it is, especially with a project the size of Ever Vail, to get your entitlements — we're already in year three — we could be behind the curve of other resort communities that also heavily depend on redevelopment.”
Economic recovery needed
The Ever Vail application includes plans to build a gondola from West Lionshead to Eagle's Nest, an underground mountain operations facility, 670 public parking spaces, 102 hotel rooms, on-site employee housing, a specialty grocery store, a live music venue, a transit center, deed-restricted and free-market condominiums, and Vail Recreation District space. The project would be built on a 12-acre site in West Lionshead and would require the demolition of the office buildings there now.
The project would also mean the South Frontage Road, which curves through West Lionshead between the Ritz Carlton Residences and the current Vail shop yard, would be realigned so it remains straight and parallel to Interstate 70 all the way through the town of Vail from west to east.
That important step would be the first phase of the project, Chief Operating Officer and Senior Vice President for Vail Resorts Development Co. Alex Iskenderian told the Vail Town Council at its last meeting.
At this point, that phase wouldn't happen until the spring of 2013 at the earliest, he said.
“It's very much reliant on what the economy does, what the real estate market does, how quickly we can sell through the existing inventory that exists in Vail right now — the significant, high-end real estate inventory that exists in Vail right now,” Iskenderian said.
The Colorado Department of Transportation hasn't officially approved the South Frontage Road realignment as of yet, either, but Kenney Williams said the indication is that the department will support it.
Town of Vail Community Development Director George Ruther said the relocation of the Frontage Road will be a major milestone in the eyes of the town. That step would be the indicator that the company is ready to break ground on the next phase of the project, also signifying the company's confidence in the overall economy, he said.
If the Frontage Road is realigned in the spring of 2013, the earliest the company would begin building other phases of the project, such as the underground maintenance facility or the hotel and parking components, would be the spring of 2014, Iskenderian said. The reason the company hasn't pursued the final CDOT approvals is because there's a two-year life span on the Frontage Road realignment approval and Vail Resorts isn't ready for that clock to start ticking, he said.
With the development agreement process about to begin, the clock will begin ticking on the project's five application approvals, however. Kenney Williams is still hopeful the approvals could happen before the end of the year, and Ruther said he can't foresee anymore delays.
“I think everyone is getting a good understanding of what the project is,” Ruther said. “Now it really comes down to discussions in the developer agreement.”
She points to the success of Solaris, the Ritz-Carlton Residences in Vail and the Four Seasons as proof that Vail visitors want what's new — the town had record sales tax revenues at times throughout the winter and the resort broke skier visit records, too.
“That idea of continuing to reinvent and reinvest in ourselves is key to a successful resort community like Vail,” Kenney Williams said. “The market certainly isn't back and the economy is still where it is, and that's why we can't commit to when this will break ground — we're committing to get this project approved so that we're ready.”
Friday, August 19, 2011
Eagle County real estate transactions has similar 1st half of the year, compared to that of 2010
Eagle County real estate ended the quarter with 620 overall transactions, just 2 above the total for 2010 through the same time period. While transactions have remained constant, the dollar volume has slipped 18% versus 2010. The main contributor to the constant transactions and falling volume are the continued bank sales. So far this year there has been 129 bank sales; which is 21% of the overall market. However, these numbers translate to just 7% of our total dollar volume ($42,386,000). The combination of these numbers means a lower average sales price for the County as a whole. The average price for the bank sales has been $328,573.
While the bank sales have had an impact on our overall market; we continue to see sales in the high end market as well. So far this year, there have been 20 transactions over $5 million. At the height of our market in 2007 there were 24 transactions over $5 million and in 2008 there were 31 through the same time period. Many of these high end sales for 2011 were from the new developments.
While the bank sales have had an impact on our overall market; we continue to see sales in the high end market as well. So far this year, there have been 20 transactions over $5 million. At the height of our market in 2007 there were 24 transactions over $5 million and in 2008 there were 31 through the same time period. Many of these high end sales for 2011 were from the new developments.
EAST WEST PARTNERS AND STARWOOD CAPITAL ANNOUNCE JOINT VENTURE FOCUSED ON THE DENVER CENTRAL BUSINESS DISTRICT
GREENWICH, CT – August 15, 2011 – East West Partners and Starwood Capital Group, a leading private investment firm focused on global real estate and energy, announced today that they have entered into a joint venture focused on the continued revitalization of downtown Denver and potentially other urban development. The joint venture anticipates initially focusing its activities in the emerging LoDo area of Denver where the partnership has control of several important sites targeted to multifamily, office and hotel use, and ultimately expanding into other select urban markets. East West Partners has contributed select assets it owns in Denver including a number of undeveloped sites in the Union Station neighborhood. Union Station will become Denver’s new transit hub with almost $500 million of public investment in light rail, heavy rail and bus infrastructure.
"We are excited to kick off this partnership with East West by investing in one of the top transit oriented downtown development projects in the U.S.," said Ethan Bing, Vice President of Starwood Capital Group. "The combination of East West Partners’ urban development experience and Starwood Capital's real estate expertise and capital resources should result in great opportunities for both firms," said Marc Perrin, Managing Director of Starwood Capital Group.
"With Starwood Capital Group as our partner we now have the financial capability to begin new development in downtown Denver and expand to other select national markets," said Mark Smith, Founding Partner of East West Partners-Denver.
The operations of Union Station Neighborhood Company, a joint venture of Continuum Partners and East West Partners, will continue as they have since Union Station Neighborhood Company was selected in 2006 as the master developer for the redevelopment of the 20-acre Union Station project.
About Starwood Capital Group Global, LP
Starwood Capital Group is a private, U.S.-based investment firm with a core focus on global real estate. Since the group’s inception in 1991, the firm, through its various funds, has invested over $9 billion of equity capital, representing nearly $28 billion in assets. Starwood Capital Group currently has approximately $18 billion of assets under management. Starwood Capital Group maintains offices in Greenwich, Atlanta, San Francisco, Washington, D.C., and affiliated offices in London, Luxembourg, Paris, Mumbai and Sao Paulo. Starwood Capital Group has invested in nearly every class of real estate on a global basis, including office, retail, residential, senior housing, golf, hotels, resorts and industrial assets. Starwood Capital Group and its affiliates have successfully executed an investment strategy that includes building enterprises around core real estate portfolios in both the private and public markets.
For more information about Starwood Capital Group, visit www.starwoodcapital.com.
About East West Partners
East West Partners is a privately held Colorado firm that has developed over $5 billion in real estate in select resort and urban US markets over the last 25 years.
"We are excited to kick off this partnership with East West by investing in one of the top transit oriented downtown development projects in the U.S.," said Ethan Bing, Vice President of Starwood Capital Group. "The combination of East West Partners’ urban development experience and Starwood Capital's real estate expertise and capital resources should result in great opportunities for both firms," said Marc Perrin, Managing Director of Starwood Capital Group.
"With Starwood Capital Group as our partner we now have the financial capability to begin new development in downtown Denver and expand to other select national markets," said Mark Smith, Founding Partner of East West Partners-Denver.
The operations of Union Station Neighborhood Company, a joint venture of Continuum Partners and East West Partners, will continue as they have since Union Station Neighborhood Company was selected in 2006 as the master developer for the redevelopment of the 20-acre Union Station project.
About Starwood Capital Group Global, LP
Starwood Capital Group is a private, U.S.-based investment firm with a core focus on global real estate. Since the group’s inception in 1991, the firm, through its various funds, has invested over $9 billion of equity capital, representing nearly $28 billion in assets. Starwood Capital Group currently has approximately $18 billion of assets under management. Starwood Capital Group maintains offices in Greenwich, Atlanta, San Francisco, Washington, D.C., and affiliated offices in London, Luxembourg, Paris, Mumbai and Sao Paulo. Starwood Capital Group has invested in nearly every class of real estate on a global basis, including office, retail, residential, senior housing, golf, hotels, resorts and industrial assets. Starwood Capital Group and its affiliates have successfully executed an investment strategy that includes building enterprises around core real estate portfolios in both the private and public markets.
For more information about Starwood Capital Group, visit www.starwoodcapital.com.
About East West Partners
East West Partners is a privately held Colorado firm that has developed over $5 billion in real estate in select resort and urban US markets over the last 25 years.
Thursday, August 11, 2011
The rich are (almost) spending like it's 2006
Luxury goods are flying off the shelves, even with the economy staggering
By Stephanie Clifford, NY Times
updated 8/4/2011
Nordstrom has a waiting list for a Chanel sequined tweed coat with a $9,010 price. Neiman Marcus has sold out in almost every size of Christian Louboutin “Bianca” platform pumps, at $775 a pair. Mercedes-Benz said it sold more cars last month in the United States than it had in any July in five years.
Even with the economy in a funk and many Americans pulling back on spending, the rich are again buying designer clothing, luxury cars and about anything that catches their fancy. Luxury goods stores, which fared much worse than other retailers in the recession, are more than recovering — they are zooming. Many high-end businesses are even able to mark up, rather than discount, items to attract customers who equate quality with price.
“If a designer shoe goes up from $800 to $860, who notices?” said Arnold Aronson, managing director of retail strategies at the consulting firm Kurt Salmon, and the former chairman and chief executive of Saks.
More must-read stories Starbucks perking up again
Starbucks, which was forced to shutter hundreds of locations during the recession, is back in growth mode.
The luxury category has posted 10 consecutive months of sales increases compared with the year earlier, even as overall consumer spending on categories like furniture and electronics has been tepid, according to the research service MasterCard Advisors SpendingPulse. In July, the luxury segment had an 11.6 percent increase, the biggest monthly gain in more than a year.
What changed? Mostly, the stock market, retailers and analysts said, as well as a good bit of shopping psychology. Even with the sharp drop in stocks over the last week, the Dow Jones is up about 80 percent from its low in March 2009. And with the overall economy nowhere near its recession lows, buying nice, expensive things is back in vogue for people who can afford it.
“Our business is fairly closely tied to how the market performs,” said Karen W. Katz, the president and chief executive of Neiman Marcus Group. “Though there are bumps based on different economic data, it’s generally been trending in a positive direction.”
Caroline Limpert, 31, an entrepreneur in New York, says she is happy to spend on classic pieces, like the Yves Saint Laurent tote she has in both chocolate and black, but since the recession, she avoids conspicuous items.
“Over all, you want to wear less branded items,” she said. “If you have the wherewithal to spend, you never want to be showy about it.” Still, she said, she is quick to buy at the beginning of each season. “I buy things that could sell out.”
The recent earnings reports of some luxury goods retailers and automobile companies show just how much the high-end shopper has been willing to spend again.
Tiffany, Louis Vuitton, Givenchy
Tiffany’s first-quarter sales were up 20 percent to $761 million. Last week LVMH, which owns expensive brands like Louis Vuitton and Givenchy, reported sales growth in the first half of 2011 of 13 percent to 10.3 billion euros, or $14.9 billion. Also last week, PPR, home to Gucci, Yves Saint Laurent and other brands, said its luxury segment’s sales gained 23 percent in the first half. Profits are also up by double digits for many of these companies.
BMW this week said it more than doubled its quarterly profit from a year ago as sales rose 16.5 percent; Porsche said its first-half profit rose 59 percent; and Mercedes-Benz said July sales of its high-end S-Class sedans — some of which cost more than $200,000 — jumped nearly 14 percent in the United States.
The success luxury retailers are having in selling $250 Ermenegildo Zegna ties and $2,800 David Yurman pavé rings — the kind encircled with small precious stones — stands in stark contrast to the retailers who cater to more average Americans.
Apparel stores are holding near fire sales to get people to spend. Wal-Mart is selling smaller packages because some shoppers do not have enough cash on hand to afford multipacks of toilet paper. Retailers from Victoria’s Secret to the Children’s Place are nudging prices up by just pennies, worried they will lose customers if they do anything more.
While the free spending of the affluent may not be of much comfort to people who are out of jobs or out of cash, the rich may contribute disproportionately to the overall economic recovery.
“This group is key because the top 5 percent of income earners accounts for about one-third of spending, and the top 20 percent accounts for close to 60 percent of spending,” said Mark Zandi, chief economist of Moody’s Analytics. “That was key to why we suffered such a bad recession — their spending fell very sharply.”
Just a few years ago, luxury retailers were suffering. Too many items were chasing too few buyers, and high-end stores began cutting prices. As a result, consumers awaited 70 percent discounts rather than buying right away. Sales of luxury goods fell 17.9 percent in October 2008 from a year earlier, SpendingPulse said, and double-digit declines continued through May 2009.
Stores stocking up
Now, many stores are stocking up on luxury items, as shoppers flock to racks of expensive goods.
“They’re buying the special pieces, whether it’s the exotic leathers, the more fashion-forward pieces,” said Stephen I. Sadove, the chairman and chief executive of Saks Fifth Avenue. “There’s a dramatic decline in the amount of promotions in the luxury sector — we’re seeing higher levels of full-priced selling than we saw prerecession.”
In 2008, for example, the most expensive Louboutin item that Saks sold was a $1,575 pair of suede boots. Now, it is a $2,495 pair of suede boots that are thigh-high. Crème de la Mer, the facial cream, cost $1,350 for 16 ounces at Bergdorf Goodman in 2008; it now costs $1,650.
“I think that she’s willing to pay whatever price the manufacturer and the retailer deem appropriate, if she sees that there’s intrinsic value in it,” Mr. Katz said.
Part of the demand is also driven by the snob factor: at luxury stores, higher prices are often considered a mark of quality.
“You just can’t buy a pair of shoes for less than $1,000 in some of the luxury brands, and some of the price points have gone to $2,000,” said Jyothi Rao, general manager for the women’s business at Gilt Groupe, a Web site that sells designer brands at a discount. “There’s absolutely a customer for it.”
Jennifer Margolin, a personal shopper in San Francisco, said she had noticed changes in clients’ attitudes. They “pay full price if they absolutely love it,” she said. “Before it was almost completely shying away, where now it’s like, ‘O.K., I’m comfortable getting a Goyard bag,’ but they get it for the quality.”
Goyard bags, in addition to having a distinctive pattern, will usually run a few thousand dollars. And, yes, they are selling out quickly.
By Stephanie Clifford, NY Times
updated 8/4/2011
Nordstrom has a waiting list for a Chanel sequined tweed coat with a $9,010 price. Neiman Marcus has sold out in almost every size of Christian Louboutin “Bianca” platform pumps, at $775 a pair. Mercedes-Benz said it sold more cars last month in the United States than it had in any July in five years.
Even with the economy in a funk and many Americans pulling back on spending, the rich are again buying designer clothing, luxury cars and about anything that catches their fancy. Luxury goods stores, which fared much worse than other retailers in the recession, are more than recovering — they are zooming. Many high-end businesses are even able to mark up, rather than discount, items to attract customers who equate quality with price.
“If a designer shoe goes up from $800 to $860, who notices?” said Arnold Aronson, managing director of retail strategies at the consulting firm Kurt Salmon, and the former chairman and chief executive of Saks.
More must-read stories Starbucks perking up again
Starbucks, which was forced to shutter hundreds of locations during the recession, is back in growth mode.
The luxury category has posted 10 consecutive months of sales increases compared with the year earlier, even as overall consumer spending on categories like furniture and electronics has been tepid, according to the research service MasterCard Advisors SpendingPulse. In July, the luxury segment had an 11.6 percent increase, the biggest monthly gain in more than a year.
What changed? Mostly, the stock market, retailers and analysts said, as well as a good bit of shopping psychology. Even with the sharp drop in stocks over the last week, the Dow Jones is up about 80 percent from its low in March 2009. And with the overall economy nowhere near its recession lows, buying nice, expensive things is back in vogue for people who can afford it.
“Our business is fairly closely tied to how the market performs,” said Karen W. Katz, the president and chief executive of Neiman Marcus Group. “Though there are bumps based on different economic data, it’s generally been trending in a positive direction.”
Caroline Limpert, 31, an entrepreneur in New York, says she is happy to spend on classic pieces, like the Yves Saint Laurent tote she has in both chocolate and black, but since the recession, she avoids conspicuous items.
“Over all, you want to wear less branded items,” she said. “If you have the wherewithal to spend, you never want to be showy about it.” Still, she said, she is quick to buy at the beginning of each season. “I buy things that could sell out.”
The recent earnings reports of some luxury goods retailers and automobile companies show just how much the high-end shopper has been willing to spend again.
Tiffany, Louis Vuitton, Givenchy
Tiffany’s first-quarter sales were up 20 percent to $761 million. Last week LVMH, which owns expensive brands like Louis Vuitton and Givenchy, reported sales growth in the first half of 2011 of 13 percent to 10.3 billion euros, or $14.9 billion. Also last week, PPR, home to Gucci, Yves Saint Laurent and other brands, said its luxury segment’s sales gained 23 percent in the first half. Profits are also up by double digits for many of these companies.
BMW this week said it more than doubled its quarterly profit from a year ago as sales rose 16.5 percent; Porsche said its first-half profit rose 59 percent; and Mercedes-Benz said July sales of its high-end S-Class sedans — some of which cost more than $200,000 — jumped nearly 14 percent in the United States.
The success luxury retailers are having in selling $250 Ermenegildo Zegna ties and $2,800 David Yurman pavé rings — the kind encircled with small precious stones — stands in stark contrast to the retailers who cater to more average Americans.
Apparel stores are holding near fire sales to get people to spend. Wal-Mart is selling smaller packages because some shoppers do not have enough cash on hand to afford multipacks of toilet paper. Retailers from Victoria’s Secret to the Children’s Place are nudging prices up by just pennies, worried they will lose customers if they do anything more.
While the free spending of the affluent may not be of much comfort to people who are out of jobs or out of cash, the rich may contribute disproportionately to the overall economic recovery.
“This group is key because the top 5 percent of income earners accounts for about one-third of spending, and the top 20 percent accounts for close to 60 percent of spending,” said Mark Zandi, chief economist of Moody’s Analytics. “That was key to why we suffered such a bad recession — their spending fell very sharply.”
Just a few years ago, luxury retailers were suffering. Too many items were chasing too few buyers, and high-end stores began cutting prices. As a result, consumers awaited 70 percent discounts rather than buying right away. Sales of luxury goods fell 17.9 percent in October 2008 from a year earlier, SpendingPulse said, and double-digit declines continued through May 2009.
Stores stocking up
Now, many stores are stocking up on luxury items, as shoppers flock to racks of expensive goods.
“They’re buying the special pieces, whether it’s the exotic leathers, the more fashion-forward pieces,” said Stephen I. Sadove, the chairman and chief executive of Saks Fifth Avenue. “There’s a dramatic decline in the amount of promotions in the luxury sector — we’re seeing higher levels of full-priced selling than we saw prerecession.”
In 2008, for example, the most expensive Louboutin item that Saks sold was a $1,575 pair of suede boots. Now, it is a $2,495 pair of suede boots that are thigh-high. Crème de la Mer, the facial cream, cost $1,350 for 16 ounces at Bergdorf Goodman in 2008; it now costs $1,650.
“I think that she’s willing to pay whatever price the manufacturer and the retailer deem appropriate, if she sees that there’s intrinsic value in it,” Mr. Katz said.
Part of the demand is also driven by the snob factor: at luxury stores, higher prices are often considered a mark of quality.
“You just can’t buy a pair of shoes for less than $1,000 in some of the luxury brands, and some of the price points have gone to $2,000,” said Jyothi Rao, general manager for the women’s business at Gilt Groupe, a Web site that sells designer brands at a discount. “There’s absolutely a customer for it.”
Jennifer Margolin, a personal shopper in San Francisco, said she had noticed changes in clients’ attitudes. They “pay full price if they absolutely love it,” she said. “Before it was almost completely shying away, where now it’s like, ‘O.K., I’m comfortable getting a Goyard bag,’ but they get it for the quality.”
Goyard bags, in addition to having a distinctive pattern, will usually run a few thousand dollars. And, yes, they are selling out quickly.
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