As the Coachella Valley’s generally accepted high season draws to a close with Easter Weekend, crowds in the desert begin to thin as temperatures climb and snowbirds accelerate their migration north and east. Among these migrants are many of the potential buyers of luxury second homes that comprise an important piece of the valley’s real estate market. As price strata climbs, so does the seasonality of the buyer pool; buyers who can afford to spend millions on a second home are generally spending the hot months in another area. As a result, the end of season becomes an appropriate time to evaluate the performance of the real estate market, particularly at the higher price points.

Nationally, recent sales of million-dollar and above properties has bucked the less encouraging general trend in real estate sales. While February’s total residential sales across the country dropped 2.8 percent below February 2010 levels, sales above $1 million were up 4 percent. To assess how the valley’s luxury home sector has performed this season, The Public Record spoke with industry leaders with expertise in luxury residential property.

“Evidence of this positive trend for luxury home sales is present in the Coachella Valley too,” says Michael C. Hilgenberg of Luxury Homes by Keller Williams Realty. The Desert Area MLS reports 101 homes over $1 million sold in the Coachella Valley since January 1, 2011, says Hilgenberg, a broker-owner and real estate veteran with 30 years of experience in the industry.

While encouraging, a small increase in activity should still be treated realistically, and in context, say experts. “The high end of the market was certainly not insulated from the great recession, and values have come down considerably,” Hilgenberg says significantly lower prices are combined with a growing number of wealthy households – the number of which has nearly reached pre-downturn levels in the United States and abroad, Hilgenberg notes – the result is a greater potential buyer pool for high-end properties.

But potential buyers, understandably value-conscious after the past few years, are still having trouble coming together on price with sellers, who must compete with large numbers of bank-owned and short sale properties, says Bruce Blomgren, executive premier director for Windermere Real Estate’s Luxury Homes and Estates Division. Blomgren has three decades of real estate experience, and has been responsible for more than $675 million in real estate transactions over the past 12 years. “While we saw some stirring in the latter part of the season, we are still not seeing the same level of activity as in strong years past,” says Blomgren. “Buyers are looking and offers are being written, but if a home isn’t a short sale or bank owned, it had better be priced like it is.”

Blomgren notes that, while families both at home and abroad are recovering wealth, many are reevaluating the need for second homes or the size of potential purchases in light of the events of the past few years. “The dynamics of the marketplace have been altered. We have a lot of $2 million buyers who used to be $3.5 million buyers, and other buyers who are close to pulling the trigger but are waiting for a further price drop to get them there.” And with the golf industry beginning to slow, there is less urgency motivating purchases on golf courses and in golf destinations.

An interesting – and promising – wrinkle to the luxury real estate picture has been its recent exposure to international buyers from emerging markets, says Hilgenberg. “Many high-end buyers are now coming to the United States from other parts of the world,” he says, “in particular, from Brazil, Russia, China, and India.” These buyers perceive the values inherent in current market conditions, and have the wealth to take advantage. As a result, sellers of high-end properties are increasingly looking at marketing efforts from a global perspective, Hilgenberg says. Blomgren notes that, while this is an emerging trend, the Coachella Valley has yet to see a large number of these buyers. “For the near term, our most common international buyers remain the Canadians, and they are most active in the $200,000 to $350,000 segment of the market.” This segment also has the benefit of a large number of spec sales, as well as the flexibility of use as a rental property, providing investment income.

Above a million dollars, the investment is more difficult to pencil out. While high end real estate values are likely to remain depressed in the near term, the S&P 500 is up more than 95 percent from its March 9, 2009 low of 719, notes Brandt Kuhn, a wealth strategist at Integrated Wealth
Management here in the Coachella Valley. “High end real estate may be a good long term investment, but investors would not have seen nearly the return we have seen in the broader stock market,” says Kuhn. There is also the issue of liquidity, he notes. “The markets provide a liquidity that is not available in real estate,” Kuhn says. “And with what banks are willing to do on the lending side, there is a lot to be said for liquidity and access to your capital. We are no longer in the 2005-2006 era when equity in property could be tapped with a line of credit just like a debit card. Funds invested in real estate are there to stay for a while.”

That is not to say that investment in luxury real estate is a mistake. Quite the contrary; the fact is that money invested in luxury real estate in the Coachella Valley goes far further than in most other communities around the country offering a similar level of lifestyle and amenities. “When you compare what a million dollars buys you here in the Coachella Valley with what that same amount would buy in a mountain or beach community… there really is no comparison,” says Blomgren. “High end real estate here is an exceptional bargain, and of course the weather and lifestyle are second to none.” The key is to expose luxury buyers from other areas to the desert, so that they can be wowed by the values, which Blomgren calls “reverse sticker shock.” For Hilgenberg, international buyers are a group very likely to appreciate these values in the years ahead. Of course, real estate has the added benefit of being a leveraged investment; and what other investment can be enjoyed as much during the course of ownership?

Both Blomgren and Hilgenberg identify Rancho Mirage as a strong performer in the valley. Hilgenberg also sees significant activity in Palm Springs neighborhoods like Las Palmas and the Movie Colony, where properties offer the large spaces that highend buyers demand. Blomgren also notes the appeal of gated communities. “These communities have homes surrounded by like properties, and their members form a network that works together to promote the community.” Bighorn is identified by both experts as having suffered the least in the downturn, with the Tradition and the Hideaway also performing well.

Both experts feel that a momentum shift is imminent, but it is slightly premature to begin forecasting timetables. “We are going to see an accelerated pace as buyers respond to these values by snapping up deals,” says Hilgenberg. “In another six months we should be able to point to a solid trend.” “We are in the midst of finding the right value levels,” Blomgren adds. “And we don’t live in a vacuum – issues like gas prices and the Federal deficit play a role in
buyer decisions. When there is a consensus that we have hit bottom, and when consumer confidence settles, we’ll see sales activity strengthening significantly.”

In the meantime, sellers need to be realistic about pricing, and buyers need to be willing to pounce on that perfect home when they find it.