‘There’s a Recession Coming’: The Rich Rush to Offload Luxury Properties

The rich are now paying attention to prices and their income, lament high-end agents in hotspots like Miami and San Francisco. "It's pretty sudden," one said.
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After a decade of feeling invincible, the tech industry is suddenly facing something new: financial insecurity. Valuations are down, layoffs are up, startup funding no longer feels limitless, and an air of fear has started to permeate the sector, as bosses and workers alike adjust to a harsher version of reality. 

In cities like San Francisco, New York, and Miami, luxury real estate agents are starting to notice the effects of the tech downturn on their business, they tell Motherboard, as wealthy tech clients grapple with the fact that raises, bonuses, and job offers no longer seem as inevitable as they did a few months ago. 

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“The elephant in the room these days is that there's a recession coming,” said Karley Chynces, a blockchain-focused real estate agent at Sotheby's International Realty in Miami.

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Nationally, rising interest rates for home loans have combined with record home costs to price out potential homebuyers. But within the pockets of the country where tech workers tend to throw money down on housing, interest rates are less of a concern than the decline of tech stocks and the constant barrage of layoff announcements, according to conversations agents have had with their clients.

“It's wider than just interest rates because a lot of people in New York City actually purchase in cash,” said Manhattan real estate agent McKenzie Ryan.

There are signs that the housing market may have temporarily peaked. Asking prices have slipped ever so slightly, homebuilders are starting work on fewer homes, and mortgage demand is the lowest it’s been since 2000. For now, home sales are down most among the cheapest homes, where buyers are more price-conscious and typically affected more by interest rates changes. But a spokesperson for the real estate brokerage Redfin, which analyzes housing data, said markets like San Francisco are “definitely cooling.” A recent Redfin analysis found sales of luxury homes were down almost 18 percent in the three months leading up to May, compared to a 5.4 percent drop among non-luxury homes. (Redfin defines “luxury” homes as those in the top 5 percent in price in a given area.)

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Ryan and others have noticed a particular nervousness among people in the tech sector, which makes up a significant percentage of top buyers in the New York and San Francisco areas, she said. They suddenly feel less secure and more skittish about shelling out for a luxury apartment.

“Job security is definitely looming over people,” said Ryan. “We're moving from a more optimistic market to a more conservative market.”

The declining values of cryptocurrencies have only added to the pain. 

“A lot of New York buyers who work in tech are also invested in Web3,” said Ryan. “The correction in those markets has resulted in a pretty substantial loss of wealth.”

Brent Rogol, an agent in New York, was recently selling an apartment to a buyer who was heavily invested in tech stocks, which dropped dramatically in value over the course of negotiations. 

“It really reduced her buying power, and we were only able to get so much,” Rogol said. “We ended up settling with this person because she was the only buyer, and she just couldn't go any higher because of her portfolio.” 

Rogol and his client were nervous until the day the transaction closed that a further market drop would kill the purchase, he said. 

Joanna Rose, a San Francisco agent who primarily works with sellers, said that while interest rates were a large issue for homebuyers nationally, “the biggest thing” affecting the San Francisco market is the decline in share prices for tech companies, since most of her $4 million-plus homes are purchased in cash and tech employees often liquidate company shares in order to put money down on a home. 

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"Interest rates are a little part of it, but from my experience and what I've seen in San Francisco, we're struggling more with things like coming up with the cash they’re used to putting down on these properties,” Rose said. 

Talk of a potential recession has only added to the sense of fear, and Rose is starting to notice it start her business recently. “It's pretty sudden,” she said.

She has only received one phone call about a new $3.5 million condo in a luxury penthouse she listed two weeks ago. Where 20 parties might have come to an open house before, Rose now hopes to get five. With fewer people looking to buy, she’s never had more listings available in July, she said. 

Rose has had to speak with her clients repeatedly to help them understand the new reality, and asking prices have recently started to drop, adding that half of active listings had reduced their asking price in the seven days before she spoke with Motherboard—“I've done two myself in the last 48 hours,” she added—and that some houses are selling for less than their list price. 

“This is just not something that happens often in San Francisco,” said Rose. “Generally, it's the opposite.”

In cases where prices are rising, Rose said it was because the homes had been purposefully priced lower than their market value in hopes of creating a bidding war. That strategy almost always used to be effective, she said, but not anymore. Outside of prime properties, “It's definitely like the pendulum is shifting towards the buyers,” agreed Nick Chen, another San Francisco agent.  

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In Miami, which has seen an influx of tech and crypto companies, Chynces said business is heating up, not slowing down. But that’s because people are trying to sell their homes before things get worse, she said. Chynces, who claims to work primarily with “crypto whales,” said she’s received $100 million worth of listings in the last two months as wealthy clients try to offload properties before price drops hit the area.

Crypto traders are more prone than the typical homebuyer to see properties as an investment to be quickly flipped, she said, and many are concerned that now is the last chance to get a return.

“The climate’s changed,” said Danny Hertzberg, another luxury real estate agent in Miami. Hertzberg, who claims to hold the record for highest sale in the city’s history, said the housing market has slowed down not only in the U.S. but internationally too, according to his conversations with agents in countries including France, Italy, England, and Argentina. 

The previous few years had been wild for Hertzberg. Rising prices in the private and public markets had given people a sense that everything was going “to the moon.”

“People were really buying completely with their heart. If they loved it they're buying it and they were paying whatever it took to get the property because they wanted it and they were making so much passively and actively that it was irrelevant,” he said. “Appraisals were irrelevant. There were no financing contingencies. And people would pay a premium to get what they want.”

But declining valuations of tech companies has had a “significant” psychological effect on the higher end of the market as people attempt to readjust to a less secure reality, Hertzberg said. “We're seeing less bidding wars,” he said. “Sellers are a little bit more flexible.” 

Not everyone is so concerned Jamie Chang, for one, sees the recent more as a gully than anything else. “It's just been on fire here,” said Chang, a realtor in Naples, Florida. “I just think people are taking a break, which they normally do in the summer.” 

The stock market has a particular effect on buyers’ thought process in her area, according to Chang, since she is often selling people their “second, third, fourth, and fifth homes,” she said. In such cases, they pull back when they see less opportunity to take advantage.

“There is not necessarily a need,” she said. “It's more of a want.”