The most-expensive home sales of 2006

The most-expensive home sales of 2006
A 64-acre estate near Manhattan went for a mere $58 million; Kevin Costner paid $28.5 for his oceanfront place.

By Forbes.com

In pictures: The most expensive home sales of 2005
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A former cab driver, the son of an African president and an actor famous for plowing a cornfield to build a baseball diamond are among the list of buyers of the most-expensive homes of 2006.

For the fourth consecutive year, Forbes.com has compiled a list of the year's most-expensive residential real estate deals. Despite top0a general housing market slowdown, 2006 was a banner year for those that deal in high-end homes. The average price of a home on our top 10 list was $40 million, up more than 10% from 2005's $36 million average, and more than 55% from the 2003 average.

It should come as no surprise that the priciest properties were clustered in California, Florida and New York, but after a year's absence, Colorado returned to our list.

In July, former Sony Records chief Tommy Mottola bought a sprawling Carbondale, Colo., ranch for $47 million. Situated at the base of Mount Sopris, the 12,000-square-foot main house has four bedrooms and four baths. The 900-acre property, which includes an 18-acre lake, was sold by broker Joshua Saslove, of Joshua & Co., who, with Gregory Antonsen of Christie's Great Estates, also holds this year's most expensive listing: Saudi prince Bandar's $135 million Hala Ranch in nearby Aspen, Colo.

Miami Beach is sizzling

Always good for a couple $30 million-plus yearly sales, the Florida market maintained its presence on our list, and, according to local brokers, things in Miami Beach are just heating up. "For the people who can afford to buy these properties, there's so much money on the sidelines right now it's not even funny," says Nelson Gonzalez, who brokered developer Ugo Columbo's million purchase – at between $31 million and $35 million -- of Carl Fisher's Miami Beach villa. "I've been in high-end luxury real estate in Miami Beach the last 20 years and this was by far the best year ever."

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We compiled our list by tracking media reports, talking to real estate brokers and consultants around the country and examining public property records. Our reported prices come from published reports and brokers who are in the know. No doubt there were deals that would have made our list but were kept under wraps. For example, the New York Post reported Schlumberger heiress Adelaide de Menil Carpenter sold her East Hampton mansion for $90 million, but based on property records it is not clear such a sale ever took place. Our list did not include land sales or sales of an undisclosed price.

The New York City metro area snagged three of our five top spots. In Alpine, N.J., about five miles from Manhattan, real-estate investor Richard Kurtz paid $58 million to Henry Clay Frick II for his 10,000-square-foot English-style mansion. The 63-acre property includes two guest cottages, a swimming pool and tennis courts, as well as greenhouses and more open space than imaginable so close to New York.

Other Gotham buyers included cab driver turned oil and real estate billionaire Tamir Sapir, who paid $40 million for the Duke-Semans mansion, owned by relatives of the late tobacco heiress Doris Duke. The seven-story Beaux Arts property, built in 1901, faces the Metropolitan Museum of Art and has an elegant mansard roof. Over on 75th street, investment banker J. Christopher Flowers dropped $53 million on the 50-foot-wide Harkness mansion, located between Fifth and Madison avenues. The 1896 neo-French renaissance property is the most expensive townhouse ever sold in New York. The mansion is designed around a central, skylight-lit atrium that the previous owner, Woody Allen producer Jacqui Safra, used as a Ping-Pong room.

Both Manhattan homes are expected to receive millions in renovation.

In California, the movie stars, directors, financiers and attorneys who live in Malibu have a new neighbor with a different sort of clout. Teodoro Nguema Obiang, the son of Equatorial Guinea President Teodoro Obiang, dropped $35 million on an eight-bedroom oceanfront mansion despite a job in his father's government with an on-the-books salary of $5,000 a month. The 15,000-square-foot estate, just off the Pacific Coast Highway, has a four-hole golf course, tennis court and pools. Obiang has views of the ocean and, when the smog isn't too bad, of downtown Los Angeles.

Farther up the coast, the Hollywood crowd made their presence felt in Kevin Costner's acquisition of a $28.5 million beach house in Carpinteria, just south of Santa Barbara. The five-bedroom mansion is perched on a bluff with nearly 1,000 feet of ocean frontage. Built on 17 acres, the five-bedroom, three-bath property also boasts equestrian facilities and a polo field.

Price is not a factor

What's driving the market's top tier? High-end luxury sales can remain out of synch with market trends because the sector of the market is volume volatile and not price volatile. This means that sales are less affected by general market forces -- because potential buyers always have enough money -- but more affected by whether rare properties are available.

"I have multiple clients who want to buy $50 or $60 million properties, but we can't find them one right now," says Mauricio Umansky, a broker at Hilton & Hyland. "When you're going to spend that much money, you have to find the perfect property."

Expect 2007 to be another blowout year, especially in New York where Wall Street bonuses came in above last year's record levels. "With all the money that's been building up, expect an active market next year," says Jonathan Miller, CEO of Miller Samuel, a residential real estate appraisal firm. "Money like that has residual benefits, and momentum has been growing for a while."

And then there's the ghost of the $100 million sale. Besides the Hala Ranch in Aspen, there are two other listed properties -- one in Florida and one in Lake Tahoe -- vying to join the company of Lakshmi Mittal's $125 million London home, purchased by the Indian-born steel magnate in 2004.

Realtors say it's just a matter of time. "Someone is going to get $100 million for a property in the next couple years, and I hope it's me," says Umansky. The commission on that? "A lot."

Reported and written by Matt Woolsey for Forbes.com.

How bad will the 2007 housing market be?

Economists predict that next year will be tough, but say some metro areas will hold up nicely and the future may not be as gloomy as some fear.

By BusinessWeek.com

To gauge what the next 12 months might look like, though, BusinessWeek.com asked economists at leading real estate research firms to provide their outlooks for the housing market in 2007. The less-than-festive consensus: Home prices will continue to fall in some markets, and the rate of price appreciation will slow in most places. Declines in homes sales, which directly influence price trends, will set the stage for another year of price decreases in 2008. Foreclosures will continue to increase. For those struggling to hold onto their homes, their net worth will shrink as these homes lose value. Long-term mortgage rates will rise. Housing starts will see double-digit depreciation, the sharpest decline since 1991, the worst year for housing starts on record.

Grim as that might sound, there are some bright spots. Nationwide, home prices will be flat to up slightly in 2007, with many large markets seeing small increases. While new home sales will be down for the year, existing home sales will also be flat. And housing starts won't see as sharp a decline as they did in the early '90s or early '80s.

Self-cleaning market

Another reason for optimism (keeping in mind that expectations are somewhat lower this year): For many, the ongoing market correction will make the dream of buying a home a reality.

"In so many of these markets, housing became extremely unaffordable," says David Stiff, chief economist at financial data processor Fiserv Lending Solutions, who expects average U.S. home prices to appreciate only 0.1% overall in 2007. "Prices moving back in line with household income sets the stage for price appreciation in the future."

Blame the rapid run-up in prices on speculation. Taking advantage of low interest rates and good economic conditions, investors drove prices to new heights in the first half of the decade, so they could flip purchases for profit. Some markets saw price appreciation rates of as much as 50%, versus the average annual rate of about 10%.

But as interest rates rose and the gap between income and housing costs widened, homebuyers never materialized as expected. Investors have now been forced to dump their property on the market, flooding many places with homes for sale and forcing prices to a more realistic level.

Time lag

"The market was in a frenzy in 2005," says Lawrence Yun, senior economist at the National Association of Realtors (NAR). "The current transition is just cleansing away the speculators." Yun expects existing home sales to slip just 0.6% in 2007, with a pickup in the fourth quarter continuing into 2008.

Home price trends tend to lag nine to 12 months behind sales trends, according to Stiff, who predicts prices will be weakest in 2008 and rebound in 2009.

The researchers at Fiserv arrive at their price forecasts by first estimating what home prices would be if housing supply and demand were in balance -- that is, if price levels were consistent with local demographic trends and household income levels. They then look at the difference between the estimated "equilibrium" price and the actual price level. If prices are too high relative to the affordable equilibrium level, the forecast is weaker price appreciation. If prices are much higher than equilibrium, the model forecasts price declines.

Construction diet

This explains why former red-hot markets like Southern California, Florida and Las Vegas, which saw the most rapid run-up in prices between 2001 and 2005, will see the sharpest declines in prices in 2007, according to home price index data from Fiserv and Moody's. The Miami area, with an estimated decline of 9.16%, will have the second-worst 2007 price drop out of all the country's metro areas. Las Vegas comes in third-worst overall, with a 9.15% forecast decline, and Los Angeles, with a 7.1% decline, isn't too far behind.

Texas didn't experience dramatic price appreciation until more recently. Consequently, the Dallas and Houston metro areas are expected to have 2007 price increases of 4% and 3.3%, respectively.

Since trends in housing starts echo price movement, it goes without saying that new home construction is headed for a major slump in 2007. Nationally, total housing starts will slide 13.2% to 1.576 million, according to the National Association of Home Builders (NAHB) in Washington, D.C. The last time the nation saw a downturn of this magnitude was in 1991, when starts dropped 15% year-over-year.

"It isn't as bad, but it's a very big decline, and one of the big reasons is because of all the investors and speculators," says Gopal Ahluwalia, vice president of research at the NAHB. In the fourth quarter, the seasonally adjusted annual rate will pick up to 1.635 million. At this point, the surplus in inventory will be gone, and prices will start to stabilize, Ahluwalia adds.

Looking for value

As with prices and sales, trends in new home construction can vary dramatically from market to market. Housing starts in the Detroit area will be among the lowest in the country in 2007, plummeting 18.3% due to continuing economic woes. Interestingly, prices will not decline, but this is largely because they cannot go any lower (Read more about Detroit's market in "The foreclosure capital of the U.S."). Seattle is the only area that will see a rise (4.7%) in housing starts, primarily because of a strong job market with companies like Microsoft and Boeing based in the area.

Ironically, even record-low new home construction numbers can be interpreted as good news for the overall housing market. With fewer homes being built, the market will be forced to absorb its current oversupply, bringing about the supply-demand balance that, once again, leads to more realistic prices. (Read more in "How buyers could save the housing market." )

"It's important to note that the value of homes isn't dropping," says Santo Rizzo, chief executive officer of Rizzo Realty Group, a national real estate investment firm in Chicago.

The normalizing market is causing "unnecessary fear" and creating a favorable market for real estate investors, says Rizzo, who recommends investing for the long term in 2007 "losers" Orlando, Fla., Phoenix and Las Vegas for their stable economies, high resale marketability, vacation market statuses, low vacancy rates and favorable price-to-income ratios.

Brighter tomorrows?

Interest rates are, of course, the wild card here. The Mortgage Bankers Association of America expects the Federal Funds Rate -- the interest rate on overnight loans between banks -- to remain at 5.3% throughout 2007, with the average 30-year fixed mortgage rate climbing to 6.6%, from 6%, and the one-year adjustable mortgage rate average staying about the same at 5.8%. According to the NAR, the Fed Funds Rate will fall to 4.8% by the end of 2007, the 30-year fixed rate will hit 6.7%, and the one-year adjustable rate will decline to 5.5%.

But no matter how you spin it, interest and mortgage rates are and will remain at historically low levels. The rest of the economy isn't in terrible shape, either -- the unemployment rate hovers around a relatively low 5%, and the stock market is in the midst of an encouraging rally.

"The law of supply and demand, more than anything, is going to be the driving force that keeps the market relatively 'flat,' throughout the year," says Rizzo. "Since we expect the economy to continue to improve, rents to continue to rise, interest rates to remain relatively low and investor supplies to be absorbed, the 2007 'flat' market will set the stage for brighter predictions in 2008."

So while 2007 won't be an outstanding year for real estate, it's unlikely to go down in history as one of the worst. At the very least, it will create an investment opportunity -- and a great lesson in basic economics.

Table: Not-so-great expectations for 2007

City
2006 median home price
2007 median home price (est.)
1-year change

Las Vegas
$324,000
$292,000
-9.9%

Miami
$329,000
$300,000
-8.8%

Los Angeles
$534,000
$492,000
-7.9%

Washington, D.C.
$421,000
$401,000
-4.8%

New York
$456,000
$442,000
-3.1%

Boston
$378,000
$371,000
-1.9%

Detroit
$115,000
$115,000
None

San Francisco
$846,000
$847,000
0.1%

Philadelphia
$226,000
$228,000
0.9%

Seattle
$385,000
$399,000
3.6%

Chicago
$278,000
$289,000
4%

Atlanta
$189,000
$197,000
4.2%

Houston
$153,000
$162,000
5.9%

Dallas
$154,000
$164,000
6.5%


Entire U.S.
$223,700
$227,500
1.70%



Median price data from Fiserv Lending Solutions and the National Association of Realtors.