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THE WALL STREET JOURNAL 6.11.04
$1M Homes No Longer Just For The Rich
But Luxury Varies

By JANET MORRISSEY
June 10, 2004

NEW YORK -- In today's red-hot housing market, one man's modest home is another man's castle - depending on what part of the country you live in. The million-dollar home - once the American dream for the rich - is now a reality for many - but takes on a drastically different look depending on location.

"When I was a kid, a million-dollar home meant you were a millionaire living in a gated community with the rich and famous," said Jason Jepson, spokesman for HomeLoanCenter.com. All that has changed.

Historic-low mortgage rates and the use of adjustable-rate mortgages and hybrid loans have allowed a greater number of Americans to tap into this luxury niche. At the same time though, a hot housing market has pushed prices up so that even modest homes in some markets have topped the million-dollar mark. According to Freddie Mac, the monthly average for 30-year fixed rate mortgages troughed at 5.23% in June 2003, but has largely remained under 6% until last month.

A million dollars will buy you a 4,000-square foot, six-bedroom, four-bathroom home in Las Vegas, complete with a pool and multiple fireplaces. That same amount could buy a 7,000-square foot, four-bedroom, six bathroom estate in Amarillo, Texas, complete with a manmade lake and fountains, said Pam Liebman, chief executive of the Corcoran Group, real estate brokerage firm.

But a million dollars is merely pocket change in New York City's frothy housing market.

A million dollars in Manhattan will barely get you a two-bedroom condominium in a doorman building and even less if you want a Park Avenue address or an apartment with city or park views.

"You could get a small two-bedroom co-op in a less than prime neighborhood" with no views for $1 million, said Liebman.

If the home shopper is looking for park or city views or prime locations, $1 million will only fetch a one-bedroom apartment spanning about 850-square feet, said Dottie Herman, chief executive of New York brokerage firm Douglas Elliman.

Although the events of Sept. 11, 2001, and recession took a toll on the Manhattan housing market, the price decline was brief - lasting only a few months, according to Jeffrey Jackson, chairman and co-founder of Mitchell, Maxwell & Jackson Inc., a New York real estate appraisal company. And the biggest correction came on apartments valued at $2.5 million or more. Smaller apartments - under $2.5 million - rebounded, he said.

Indeed, Jackson said $1 million bought 2,309 square feet of space on average in a doorman building in New York in 1994, 1,931 feet in 1991 and only 1,282 feet in 2004. Translated, this means a homebuyer could get a small three-bedroom apartment five years ago - but only a small two bedroom today.

In Orange County, Calif., it's a similar story. Just ask Jason Mockabee, a 28-year-old Web site designer who has bought and sold homes twice in the past six years in the frenzied California market. When Mockabee bought a four-bedroom house in Costa Mesa, Calif., for $325,000 in 1998, little did he know that three years later that same house would be worth more than $800,000.

Unfortunately for Mockabee, he sold the house for about $375,000 in 2000, pocketing only a modest profit. And when he tried to move back to the old neighborhood in 2002, he was in for sticker shock.

"I could absolutely kick myself," said Mockabee, whose realtor wouldn't even bother showing him homes in his old neighborhood because the prices had skyrocketed so much.

So, Mockabee wound up plunking down $475,000 to purchase an old, rundown four-bedroom home built in 1952 in an adjacent neighborhood.

"We're talking about original everything," said Mockabee wryly, noting that nothing in the house had been upgraded since its construction 50 years earlier. "The worst on the block," he said.

But 2 years and $50,000 worth of renovations later, Mockabee is again selling - and he's smiling.

Mockabee was hoping to get $700,000. "I thought I was shooting for the stars," he said. "But Michael, my realtor, just laughed. He said 'how about $800,000?' "

Mockabee has had three formal offers in excess of $800,000. Does he feel like he's been living in a home valued at close to $1 million? "Hell no. No way," he said.

The big question on many homebuyers' and homeowners' minds is how long will prices continue to escalate in major markets, such as Orange County and New York.

Anthony Hsieh, chief executive and founder of HomeLoanCenter.com, said prices in the Irvine and Newport Beach areas of California have been rising at a feverish pitch - 15% to 20% annually - for the past two-and-a-half years, while prices in other parts of Orange County have risen 10% to 15% annually. He anticipates the growth pace will likely slow to 5% to 10% growth over the next three years, but doesn't anticipate a drop-off in price.

Still some economists and market experts believe that as interest rates rise, prices will correct in major cities. Richard Georgi, managing partner at high-flying opportunity fund Soros Real Estate Partners, recently told a New York conference that he believes a major correction is "inevitable" - but offered no predictions on when or how large it would be.

In the meantime, buyers can get the biggest bang for their buck if they're indifferent to the glitz and glamour of major cities, such as New York, and are willing to live in offbeat locations. Take Leawood, just outside Kansas City, where a million dollars will buy someone a 6,200 square foot estate with six bedrooms, six bathrooms, state-of-the-art media room, plush gaming room, and surrounded by flush gardens, fountains, a pool and a circular driveway. Or perhaps Rockwall, Texas, where a million dollars will put someone into a 6,600-square foot, five-bedroom, six bathroom Italian villa near a lake with Dallas skyline views.

-By Janet Morrissey, Dow Jones Newswires; 201-938-2118
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