It wasn't so long ago that US$100m (NZ$146m) was regarded as a ludicrous price to pay to make a movie, even a star-studded Hollywood blockbuster. Now the time is drawing near when US$100m might look like a reasonable amount of money to shell out for a house.
When the New
York Post reported a week ago that a 40-acre ocean-front estate in the Hamptons, complete with main house, three outhouses and a private beach, had sold for US$90m, the property world did not reel in horror. At least one broker opined that the buyer, the owner of the Swedish private equity firm Proventus, had got a bargain.
It now appears that the deal on the East Hampton house, currently owned by Schlumberger oil heiress Adelaide de Menil Carpenter, might not be quite as complete as the Post reported. (Most likely, the parties have entered the "escrow" period in which either still has the option to back out.)
But if the sale does go through, it will smash by a heady US$20m the record for the most expensive private property purchase in the US. That benchmark was set last October when Ron Perelman, the supremo of cosmetics giant Revlon, sold his estate in Palm Beach, Florida, to a Virginia property speculator.
Like the Hamptons estate, the Perelman home, Casa Apava, is quite something: a mansion right on the Atlantic Ocean, with additional land facing west across a second stretch of water.
To call it silly season in the American property market would be a gross understatement. In common with much of the rest of the developed world, the US has been experiencing a decade-long housing boom that just refuses to turn to bust, despite the brief recession of 2001-02, the 11 September attacks, the steady erosion of the American middle class, and any number of other factors.
"I'm having trouble breathing because it's so crazy right now. There are more and more properties coming on the market, and it's difficult to keep up with everything," said Richard Stearns, who buys and sells houses for Sotheby's International Realty in Los Angeles.
"Everything is selling, almost always with multiple offers on the table. And every new sale sets the level for future sales."
Who would have thought the term "desirable" would ever have been applied to beachfront property in Mississippi, attracting refugees from Florida's overheated market? Who would ever have coined the phrase "hot property" in association with Billings, Montana, where house values have appreciated more than 20 per cent in the past year?
Property is no longer merely the fulfilment of the American dream of home ownership. It has become an investment, a lottery, as hot now as junk bonds were in the late 1980s or stock options during the dot-com era.
In Naples, Florida, an affluent retirement community on the Gulf Coast, there have been instances of houses sold twice in the same day - turning bricks and mortar into the equivalent of trading derivatives.
In California, Mr Stearns sold a condominium unit a month ago for US$789,000 (NZ$1.1m); this month an identical unit went on the market and is fetching offers as high as US$815,000.
Observers are asking whether this is a speculative bubble and, if so, when it might burst. Expert opinion believes a crash is imminent, at least in some regions of the country. But expert opinion has been forecasting a crash for at least four years.
Week after week, the improbable listings keep on appearing. Last week in Los Angeles, it was Ellen DeGeneres offering her Hollywood Hills compound for just under US$13m - complete with spa tub, steam shower, outdoor meditation area, guest house with gym, koi pond, swimming pool and a living-room where the television drops from the ceiling at the touch of a button.
The engine for the madness is, primarily, the low cost of borrowing. US bank lending rates have been creeping up for more than a year, but they have yet to impact mortgage rates, which remain well under 6 per cent.
"When that figure starts to go up over seven and towards eight, it will have a significant impact," Mr Stearns said.
"But for now money is so cheap it's leveraging the whole market."
The warning signs are nevertheless beginning to manifest themselves. More than 70 per cent of home-buyers in the San Francisco area - one of the most expensive housing markets in the country - have taken out mortgages on which they are paying off only the interest, not the capital.
Some mortgage lenders are now selling "negative amortisation" loans, pushing home-owners ever deeper into debt because they are not even making the full interest payments each month.
Alan Greenspan, the chairman of the Federal Reserve, has referred to "froth" in the housing market and Fannie Mae, the country's biggest mortgage lender, has begun predicting some sort of crash in the near future.
None of that gloom has yet penetrated the weekly round of home showings.
In the Los Angeles market they are not only queueing up for the US$5m homes considered well into the exclusive category only a few years ago. They are queueing for US$8m and US$9m homes too. Luxury now begins somewhere around the US$15m mark. Some of the world's greatest movies have been made for less.
- INDEPENDENT
It wasn't so long ago that US$100m (NZ$146m) was regarded as a ludicrous price to pay to make a movie, even a star-studded Hollywood blockbuster. Now the time is drawing near when US$100m might look like a reasonable amount of money to shell out for a house.
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