When the housing bubble burst in 2008, few local real estate sectors were hit harder than the luxury home market.
Seemingly overnight, potential buyers disappeared and financing for homes costing more than $700,000 became nearly impossible to obtain.
From 2008 to 2012, the sector underwent a massive bloodletting, as banks foreclosed on land and lots in high-end communities, causing many custom homebuilders to go out of business.
Fast forward to today and the Triangle’s luxury home market looks markedly different.
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Sales of homes priced above $500,000 rose 20 percent last year, and that segment was the only price range that added inventory in 2015.
“It’s not quite as strong as it was back when it was on fire, in 2005 and 2006, but it’s definitely a whole lot better than it’s been since 2007,” said Rex Bost, president of Bost Custom Homes.
Perhaps the best sign of the market’s improved health came last week, when a local development group announced plans for Avalaire, a 90-lot community in North Raleigh where homes will start at $1 million.
Avalaire is to be built on 160 undeveloped acres at Durant and Honeycutt roads – one of the few remaining sites of that size in North Raleigh. The developers paid $10.5 million for 100 acres where they plan to begin building 56 homes later this year. The second phase will include 34 lots on an adjacent 60-acre parcel.
The two met in 2010 in the depths of the recession when both were looking for opportunities among all the distressed land that was becoming available.
MacDonald has been eying the Avalaire property for about a decade. After leaving Highwoods, he ran the Raleigh office of the land development company Stratford Land. MacDonald left Stratford in 2012 to start Arcadia Real Estate Advisors. Avalaire is Arcadia’s first land development project in Raleigh.
Reiter sold Raleigh-based Capitol Homes to Comstock Builders in 2006 and then launched Terramor in 2008. Terramor isn’t among the nine custom builders who will be active in Avalaire, as it focuses mainly on homes priced between $500,000 and $1 million.
The Triangle luxury home market has benefited from a confluence of factors in recent years – strong local job growth, a rising stock market and an influx of new residents into the area.
Reiter said the recovery has played out in two phases. In 2012 and 2013, builders were able to scoop up foreclosed lots for cheap and thus price their homes more competitively than existing inventory.
“You could at the time buy new homes cheaper than existing homes, and that’s what drove demand in the initial years of the recovery,” he said. “In the latter years there’s just no lots to build on. All the foreclosed lots are gone, so now it’s a matter of very limited supply and high demand.”
Bost, whose company has been selected to build the model home in Avalaire, said there’s now pent-up demand for custom homes and lots that are suitable for such homes.
“There just haven’t been any new neighborhoods hitting the market in quite some time,” he said.
Hearing custom builders talk about pent-up demand may seem strange given the number of homes priced above $700,000 that remain on the market in the Triangle.
At the end of last year, the region had 10 months of luxury inventory at the current pace of sales, compared to just 3 months for homes in all price points, Triangle Multiple Listing Services data show.
But the luxury market doesn’t operate the same way it does in lower price points. It is heavily segmented by price and by whether a house is a resale or new construction, notes Stacey Andfindsen, a Cary appraiser who analyzes MLS data.
“The fact that it’s new construction and the fact you don’t really have a competitive subdivision that’s been built in almost 10 years, I think that’s what enables something like this to have a good chance to succeed,” he said.
Rapid technological change, including improvements in energy efficiency home automation, is also helping to make new construction more attractive to wealthy buyers.
“Homes that are just 10 years old have a lot of dated things in them,” Bost said. “ ... (Buyers) see too many things they want to change to make the home new and modern, so they are looking to build new.”
Still, even in an improving market, selling 90 million-dollar homes carries risk, as MacDonald is well aware.
“I’m a member of Hazentree, so I’m very familiar with what happened there,” he said, referring to the North Raleigh luxury golf community that was beset by financial problems after its developer was foreclosed upon. “And we don’t want to have another situation like that occur.”
MacDonald said he expects Avalaire’s location to make it particularly attractive to luxury buyers. Most are now forced to look well outside Raleigh, in northern Wake County along N.C. 98, if they want homes above $1 million on expansive lots.
“I think these buyers want to be closer in and have the amenities that Raleigh has with shopping and dining and being able to get on Interstate 540 easily,” he said.