A Sign of the Times

One of the signs of our times is without a doubt the unprecedented collapse in the real estate market during the last few years. Since 2007, many homes have lost about 40% of their pre-recession value. This was the direct result of so many people losing their jobs all at once due to so many companies downsizing or even going bankrupt all at once due to the historic credit crisis brought on by the subprime mortgage debacle.

With so many people out of work, for most of them, the equity in their homes represented the bulk of their net worth. With no income, many were forced to sell in order to survive. That’s when the very unforgiving laws of supply-and-demand kicked in. Many desperate people selling all at once, a very few who could afford to buy and many of those who could afford couldn’t get financing anyway because of the credit crunch, even if their personal footing was quite solid. Thus, home values plummetted, and in a rather spectacular and unprecedented fashion. Some say home values will never come back, that this is now the new normal. Some even say that home ownership is not even good economics anymore, and never will be again. I thoroughly disagree with these positions but that will be the subject of another post.

For now, suffice it to say that it is definitely a sign of the times that many homes in America have lost 40% of their value since the recession started. That’s unfortunate for people who have been in their homes less than ten years and/or do not have at least a 60% equity stake. For those at the 60% mark, the tragic news is that your homes are worth zero. For those below, it’s even worse. You must sell your home for less than what it’s worth so not only will you get zero, but you will still owe money to the bank, in some cases a lot of money. I have a number of friends who have lost their homes but at least had banks that treated them reasonably. Their bankers got them out before the market value dropped below the equity value, then downsized them to a much smaller rental they could afford and took their homes off their hands for a straight wash. It was a solution that at least left them with some place to live and with no debt, a recipe for a new beginning. There are so many others who were not so lucky.

But one thing I’ve found quite curious about this housing crisis is how democratic it has been. Usually the wealthy are unaffected by these economic downturns, even when they’re severe, or at least not affected to the point that they lose their homes. Not this time around. It seems the wealthy have been subjected to the same 40% penalty as have the rest of us.

Last September 18th, I published a post about the most expensive homes in America, noting that my personal favorite was the enormous and enormously lavish 56,000 square foot estate of the late TV producer Aaron Spelling in the ultra posh Holmby Hills section of L.A. At the time, Spelling’s widow had just listed it for $150 million dollars, making it THE most expensive home on the U.S. market at the time.

(On Memorial Day weekend, I informed everyone that I had changed my mind. That week my new dream house was listed, a 53,000 square foot wonder estate in the beautiful Hollywood Hills for a mere $6 million that appealed to me (and probably uniquely to me) because of its extraordinarily maverick feature of a fully functioning built-in movie studio. In fact, this had at one time been a secret Department of Defense facility where the Air Force made top secret movies. Between the history and the facility, how could I pass up this bargain price at such a prime location with such a huge amount of square footage, if only I had the bargain price!)

I’m writing about real estate and the enormous Spelling property today because, last week, it finally sold. Some 30-something heiress to a perfume fortune purchased it for $85 million, a full 43% below the asking price. This is just one of several lavish estates this heiress now owns. So even a billionaire like the widow Spelling was forced to unload her palace at a stunning discount. Of course, she and her family had lived in this mansion for many years, at least since the time of the hit series "Charlie’s Angels," so I’m sure she still made a tidy profit. But I’m struck by the fact that even the rich and the famous have not been immune to this recession.

Below is a link that will offer you an impressive tour of this property that is nothing short of a palace.

Inside the Spelling Manor

And while we’re on the subject of palaces, Jennifer Anniston’s Beverly Hills home is also newly on the market and the link below will give you a look at this stellar property. But she paid only 13 million for it in 2006 (and I’m sure she paid cash) so I doubt she’ll be losing anything from the $42 million listing.

Jennifer Aniston's $42 Million Dollar Home

And from the sublime to the ridiculous, super-star rapper 50-Cent has had his Connecticut mansion on the market since 2008. To call this 54,000 square foot property a mansion is a ridiculous understatement. It looks more like an expansive 5-star resort hotel than a private residence. The original listing was $19 million. Last week the listing was changed to $10 million, a 48% drop.

50 Cent's $10 Million Dollar Estate

Indeed, a sign of the times.