The 2007 Coldwell Banker Previews International Luxury Survey has now been published and portrays a remarkable degree of optimism among respondents with regard to their own stake in the US’s real estate market. A surprising 56% of those surveyed are expecting the value of their homes to increase in the next 12 months and 10% expect the increase to be significant. Over a five-year term, 58% expect values to rise and 36% expect them to rise significantly. The survey press release doesn’t define what’s deemed to be a ‘significant’ increase in value. Nor does it let on what the percentages were for people expecting their home’s value to plateau, to fall or to fall significantly.
The survey showed 40% of respondents having plans to purchase a second home and 38% to make a real estate purchase solely for investment purposes. The survey does not make clear what proportion of these purchases are expected to be in the US and what proportion abroad. Also, Coldwell Banker appear to be ambivalent when it comes to distinguishing between ‘homes’ and ‘investments’ with BusinessWeek quoting Coldwell Banker President, Jim Gillespie as saying: ‘It is important to remember that in addition to being a home, real estate is a long-term investment, one that can withstand periodic changes in the market.’. This ‘dual benefit’ attitude is really a luxury, entirely dependent on not needing to liquidate your assets.
One way to evaluate the Coldwell Banker findings is to see how 2007 compares with previous years. Leaving aside the survey, it is interesting to note that Coldwell Banker’s associates sales of $1m plus homes in 2006, at $47bn’s worth, is down steeply from the 2005 figure of $56bn. As for the 56% expecting to see a rise in the value of their homes between April this year and the same time next year, the 2006 survey appears not to have asked the question.
However, the US Trust 2006 Survey of Affluent Americans reported that only 48% of their respondents expected real estate values to increase in the following 12 months, down from 72% in survey 12 months before. The US Trust survey is even more exclusive than Coldwell Banker’s, focusing on people with over $5m of ‘investable’ wealth compared to $1m for the Coldwell Banker respondents.
The latest (US Trust) survey showed that 71% of respondents expect tax changes to adversely affect real estate values; uncertainty over inheritance taxes beyond 2011 seem to be a particular concern. The 2007 US Trust survey does not appear to have checked expectations for real estate values but 67% of respondents said that they ‘favoured’ the real estate sector for investment purposes – again no distinction was made between domestic and foreign property investments and presumably direct investments, REITs and property funds are all included in this category.
Possibly the most surprising comparative statistic to come out of the Coldwell Banker surveys is the increase in the proportion of respondents with a real estate component in their retirement savings, up from 19% in 2006 to 31% in 2007. Once again, the relative amounts being invested in the US and abroad are not shown.