What, No Pool In the Foyer?

By Janice Castro

For Chip Reid, 39, a partner in the Washington law firm of Covington & Burling, the dream house has become a reality. He and his wife and two young daughters moved into their new home in McLean, Va., last month, just as the first grass began to peep through on their newly seeded front lawn. Their dwelling, though, is more than just a cozy little nest in the suburbs. The Reids' Colonial-style house has 15 rooms, including four bedrooms, a library and an exercise center. Stereo music can be piped into each room, and, using infrared remote-control devices, the family can operate the sound system and even select a track on a compact disc from any part of the house. The home also has 4 1/2 baths, six fireplaces and a high-tech exterior lighting system. But the really impressive part of the house is its price tag: $900,000.

As high as that sounds, the sum the Reids paid for their home is not all that unusual in the U.S. of 1987. In suburban developments from Newport Beach in California to West Bloomfield near Detroit and from North Stamford, Conn., to the Buckhead area of Atlanta, luxury houses that start at $500,000 and run well over $1 million are sprouting in unprecedented numbers. Reason: the unusually long five-year-old economic expansion and the record-breaking stock market advance have rapidly swelled the ranks of the rich. Says Ray Gentile, a builder on Long Island's North Shore: "A shocking number of people have suddenly become wealthy, and they want to show the world. Their luxury home is the ultimate present to themselves."

The burgeoning demand for princely quarters has caused house prices to surge in many exclusive towns, especially on the East and West coasts. The average sale price of a home in Bradbury, Calif., a Los Angeles suburb, has in the past year gone from $459,000 to $610,000, according to a survey by the nationwide broker network of RELO, a Chicago-based relocation service. In Greenwich, Conn., northeast of Manhattan, the average cost has skyrocketed incredibly, from $467,500 to $1.2 million since the summer of 1986. Prices are not rising that fast in heartland suburbs, but almost every region of the U.S. has a strong luxury-housing market, with the exception of depressed oil-patch states like Texas and Oklahoma.

Many of the new rich want to live like the old rich, and that is reflected in the classically grand facades of their houses. "One might look like Mount Vernon, one like the White House and one like Monticello," says Randolph Williams, developer of more than 20 luxury-home communities in the Washington suburbs. Inside, the new mansions often combine traditional elegance and modern glitz. Among the common features are mahogany trim, granite counter tops, marble floors, custom-made Palladian windows and spectacularly high ceilings.

One thing the top-dollar home of the 1980s often lacks, though, is a spacious stretch of surrounding land. Unlike estates of yore, which typically had 25 to 100 acres of grounds, many of the new mansions are built on one- or two-acre lots and lined up in rows almost like luxury Levittowns. Near Boca Raton, Fla., 90 huge multimillion-dollar homes have been shoehorned onto half- acre slivers in the Sanctuary, a development built along a canal. Says Sanctuary Builder Stephen Chefan: "We get people who look around and say, 'Four and a half million for a house on a postage stamp? You've got to be kidding!' But then they come back three days later, and they love it."

They may have no choice. More and more luxury homes are being built on relatively small plots because of the decreasing availability and surging price of choice suburban land. Property in the Washington area, for example, can cost as much as $300,000 an acre, up more than 50% in the past 18 months. One prime two-acre waterfront lot in Lloyd Neck, Long Island, a suburb some 35 miles from Manhattan, sold in 1980 for $90,000; the same land is now valued at $1.2 million. New-home prices are directly affected by that inflation. Generally speaking, developers calculate the desirable sale price of a new house to be triple the cost of the land it is built on.

So who can afford the million-dollar tags on today's luxury homes? Plenty of people, it turns out. In addition to such traditional mansion buyers as movie stars and corporate magnates, there are fresh legions of investment bankers and lawyers who have made a killing on the merger frenzy, computer whizzes who have launched fast-growing companies, and service-industry entrepreneurs who have sold dozens of franchises for fast-food outlets or muffler-repair shops. Over the past five years, just the rise in stock prices has created an estimated 2,500 to 5,000 new millionaires and given untold added wealth to the nearly 500,000 people who already belonged to that elite circle.

The economic trends, meanwhile, are being reinforced by demographic and political forces. Hordes of young people who make up the giant postwar baby- boom generation are reaching the ages of 35 to 40 and coming into their peak earning years. The wealthiest boomers are now able and eager to buy luxury homes, and tax reform has given them an added incentive to do so. Because of the reform bill that Congress passed last year, hefty home mortgages are just about the only major tax shelter left.

Demand for lavish homes has helped bring feverish inflation to the broad housing market. In just a three-month period, between April and July, the average price of all new single-family homes sold in the U.S. jumped nearly 10%, to $129,200. While the total number of freshly built single-family houses sold last year rose by 9% from 1985, sales of new homes priced at $150,000 or more went up 49%. The size of houses is increasing as well, though not nearly as fast as the price. The average new single-family home now covers 1,825 sq. ft., up 7% since 1982.

The dark side of the rampant housing inflation is that it is becoming more difficult for families to buy a new house if they do not already own a home that they can sell at a hefty price. The National Association of Home Builders estimates that nearly 70% of this year's buyers of new homes are trading up -- exchanging their old houses for better, more expensive ones. Thus first- time buyers account for only 30% of the market, down from 50% as recently as 1982.

Strong sales of suburban homes are almost the only bright spot in an otherwise sluggish building industry. While the number of single-family homes started last year went up 10% from 1985, construction of new apartment dwellings was down 6%. Meanwhile, the value of commercial and industrial construction also declined 6%.

Just as the huge demand for deluxe homes is a godsend to builders, it is a boon to the suppliers of quality home furnishings. U.S. sales of finished marble increased by 32% last year, to nearly $1 billion. Old World Moulding & Finishing, a Farmingdale, N.Y., manufacturer of some 500 different kinds of moldings, reports that its 1986 sales topped $1 million, an increase of nearly 90% in one year. Marvin Windows, a Warroad, Minn., firm that makes custom-made windows and patio doors for the expensive-home market, has had record sales every year since 1982. The company has been swamped with orders for windows in the shapes of circles, ovals, stars, footballs and hearts.

; Purveyors of high-tech consumer electronics are also fond of the megahome trend: it often allows them to sell twice as many goodies to one homeowner. Dual "entertainment centers," including one for the children, are increasingly common in today's luxury homes. Both centers may be outfitted with records and audio-and videotapes, along with movie and big-screen-TV equipment. At the Blackhawk luxury-house complex in Danville, Calif., one homeowner installed a separate entertainment center with a TV and stereo in the guest suite of his 10,000-sq.-ft. Normandy-style chateau, for those times when his guests might want to relax in style without their hosts.

Many of the well-heeled members of the suburban gentry go to more extravagant lengths. Cableland, the 30-room mansion built by Cable TV Mogul Bill Daniels in Denver, has a bandstand in the living room. A $20 million home in Bel Air, Calif., owned by a Los Angeles developer and a partner, has a 55- ft.-long aboveground swimming pool on a terrace. The pool has underwater windows that give swimmers a spectacular view of the Los Angeles Basin. In Lake Forest, Ill., a 38-year-old consumer-electronics salesman has installed both a waterfall and a swimming pool in his kitchen.

Some industry experts think the luxury-housing bubble is bound to burst before too long. The economy cannot keep expanding indefinitely, and interest rates, including mortgage costs, are starting to rise from the low levels that have prevailed for the past few years. But as long as the heated demand lasts, the megabuilders intend to keep putting up mansions that Citizen Kane would not be ashamed to live in. Says Budd Holden, a Los Angeles luxury-home developer: "The people spending millions of dollars on a home are buying not so much a house as a life-style." And a pretty good one, at that.

With reporting by Rosemary Byrnes/New York, with other bureaus