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Special Reports
Home Equity Lending
Luxe Homeowners Pour Funds into Improvements
by Jennifer Harmon
PARSIPPANY, NJ -- Whether through tax refunds or home-equity loans, luxury homeowners
are continuing to pour significant amounts of money into improvements for high-end homes, which is leading to higher
home prices, according to data from the latest Coldwell Banker Luxury Index.
"With more and more dollars allocated toward renovations, upgrades and additions,
it is no surprise that property values continue to appreciate," said Jim Gillespie, president and chief executive
officer of Coldwell Banker Real Estate Corp. "The home improvement frenzy is likely a key reason why we are
seeing a significant rise in sales of pricier homes through our luxury division, Coldwell Banker Previews International."
Sales of homes in the $3-million-plus range grew 35% in the first quarter of 2005
compared with the same period in 2004, the index showed. "This is in line with the study's findings, as the
number of respondents who indicated they purchased a home in excess of $3 million tripled since the initial index
in August 2004. The continuing home improvement craze is a boon for the real estate market and a major reason for
rapid appreciation," Mr. Gillespie said.
The Coldwell Banker Luxury Index surveyed 300 U.S. homeowners with an income over
$100,000 and who have purchased a house valued at over $1 million over the last two years. The survey was conducted
via a series of phone interviews by independent market research firm International Communications Research in March
and April of 2005 and commissioned by Coldwell Banker Previews International.
Key home improvement findings from the 2005 luxury index revealed that 31% of luxury homeowners expect a tax refund.
Of those, the majority, or 51%, intend to put that money back into their homes, while 31% will expand or remodel
their residences in the next 12 months.
Of the 36% of luxury homeowners who have refinanced or taken out a home-equity loan in the last 12 months, 42%
of them will be using the funds for home improvement or other real estate purposes.
"Luxury homeowners take great pride in their homes as symbols of their lifestyles and personalities. While
these homes are already considered high-end, they are being transformed into more lavish and ultra-comfortable
living spaces," Mr. Gillespie said.
"In many cases, these affluent homeowners have more than one trophy property for either recreational, entertainment
or investment purposes."
When asked whether they owned or planned to purchase a second home or vacation home in 2005, 27% indicated they
already owned a second home or vacation property, while 17% indicated they planned to buy one this year. Of those
who already own a second or vacation home, significantly more respondents indicated that their second homes were
used for recreation vs. investment purposes. And 54% of homeowners who owned, or planned to own a second home said
it was located within 300 miles of their primary residence.
The 2005 index found that the number of luxury homeowners planning to purchase second or vacation homes grew slightly
since August 2004.
"These findings contradict the current notion that the affluent are purchasing second homes purely on speculation,"
noted Mr. Gillespie. "Rather, we have found that those homes are being used as recreational properties, as
residences for children in college or for investment."
According to the study, nearly two-thirds, or 64%, of luxury homeowners said recent increases in interest rates
will have no impact on their luxury purchases.
This compares to 61% of luxury homeowners who answered the same way in August 2004 when interest rates were lower.
Only 4% said that recent interest rate hikes will greatly impact luxury spending, with another 31% indicating that
they will scale back luxury purchases.
"The index provides a snapshot of the state of the luxury home market today, as well as wealthy Americans'
preferences and attitudes when it comes to their homes," Mr. Gillespie said.
The most popular luxury amenities recently purchased are security systems, gourmet kitchens, landscaped yards,
home theaters, hot tubs and in-ground swimming pools. These results mirror the August 2004 findings.
When asked to define the largest purchase they expect to make in 2005, cars topped the list at 17%. However, an
overwhelming 41% of the answers related to the home, with furniture topping that list at 11% followed by home remodeling
at 9%, among others. In contrast, interest in purchasing boats, yachts and country-club memberships waned compared
with August 2004 results.
Nearly half of the respondents reported an annual household income of $300,000 or more. The largest number of respondents,
27%, reported a household of four people and a wide range of age groups were represented. Twelve percent of those
surveyed were under 35, 40.9% were between ages 35 and 44, 27% were between ages 45 to 54, 14% were between 55
and 64, and 5.6% were 65 or older.
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