Home improvement fever fuels real estate appreciation

“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 CEO of Coldwell Banker Real Estate Corp., in a news release. “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.”

Gillespie said that sales of homes in the $3 million plus range grew 35 percent in the first quarter of 2005 compared with the same period in 2004. The Coldwell Banker Luxury Index is a survey of 300 U.S. homeowners with incomes in excess of $100,000 and who have purchased houses valued at more than $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 and commissioned by Coldwell Banker Previews International.

“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,” Gillespie said. “In many cases, these affluent homeowners have more than one trophy property for either recreational, entertainment or investment purposes.”

Second homes, affluence go together

When asked whether they owned or planned to purchase a second home or vacation home in 2005, 27 percent indicated they already owned a second/vacation property, while 17 percent 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 versus investment purposes. Fifty-four percent of homeowners who owned, or planned to own, a second home said it was located within 300 miles of their primary residence. The index also 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,” notes 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 percent, of luxury homeowners said recent increases in interest rates will have no impact on their luxury purchases. This compares to 61 percent of luxury homeowners who answered the same way in August 2004, when interest rates were lower. Only 4 percent said that recent interest rate hikes will greatly impact luxury spending, with another 31 percent indicating that they will scale back luxury purchases.

The most popular luxury amenities recently purchased are security systems, gourmet kitchens, topiary/landscaped yards, home theaters, hot tubs and in-ground swimming pools, respectively.

These results mirror the August 2004 findings. Also noteworthy is the fact that 16 percent of respondents indicated that their homes are equipped with bedroom kitchens.

When asked what new high-end amenities they plan to put in their homes in 2005, the top responses were:

• Topiary/landscaping – 23 percent

• Home theater system/room – 13 percent

• Gourmet/designer kitchen – 12 percent

• Hot tub – 10 percent

• In-ground pool – 8 percent

Despite the fact that 53 percent of luxury homeowners reported that they are currently on a budget, an investigation into recent lifestyle and behavior patterns reveals a different picture.

In fact, in just the past six months, 60 percent of luxury homeowners reported that they had been to a high-end spa or resort; 46 percent have vacationed internationally; 45 percent have flown first-class on a commercial airline; 17 percent have flown on private jets; and 11 percent have been on cruises.

In addition, in the last six months, 4 percent of luxury homeowners reported having elective cosmetic surgery.

Demographics

Nearly half (47 percent) of index respondents reported an annual household income of $300,000 or more. The largest number of respondents reported a household of four people (27 percent), and a wide range of age groups were represented.

The 2005 Coldwell Banker Luxury Index study was conducted among 300 U.S. luxury homeowners, defined as those owning homes valued at $1 million or more.