LUXURY — A GROWING NICHE IN AN UNCERTAIN MARKET
True direction and intensity of trends can be obscured by noise in the data when sample sizes or time frames under consideration are too small. Month-to-month comparisons could lead you to reach faulty conclusions, so it’s important to keep a long-term perspective, which is the only proper context in which to view real estate investment and home purchase trends.
Under scrutiny, the current luxury market may appear to be hitting a slowdown, but viewed through a broader lens, the picture is one of stability, as home prices decline marginally, or rise at more sustainable rates than they did coming out of the Great Recession. In looking at North American luxury market data, single-family luxury home prices have fallen as much as 5% from one month to the next, but over the last 18 months, the median sold price has remained right around $1.4 million, illustrating a steady stabilization of the market. Attached luxury homes faced as much as an 8% drop month-over-month, yet the median sales price is consistently around $915,000.
INTEREST RATES, AFFORDABILITY INJECT UNCERTAINTY
To jumpstart the global economy coming out of thefinancial crisis ten years ago, central banks aroundthe world initiated extraordinary monetary policiesand slashed short-term interest rates to zero. Thesepolicies reinvigorated an appetite for risk taking andboosted returns from assets like stocks and realestate, but monetary authorities are now unwindingthe emergency measures. The Federal Reservebegan hiking short-term rates in December 2015.
To jumpstart the global economy coming out of thefinancial crisis ten years ago, central banks aroundthe world initiated extraordinary monetary policiesand slashed short-term interest rates to zero. Thesepolicies reinvigorated an appetite for risk taking andboosted returns from assets like stocks and realestate, but monetary authorities are now unwindingthe emergency measures. The Federal Reservebegan hiking short-term rates in December 2015.
UNIQUE MARKETS FOR UNIQUE PROPERTIES
Regarding the impact of the current situation on the outlook for the luxury real estate market in 2019 and beyond, the most likely scenario to unfold, and one that is unfolding according to data from individual markets, is a slowing of the recent pace of price appreciation at the higher price points, rather than a 2008-like collapse.
The luxury market’s slowdown is also related to world trade activities and geopolitics. The affluent population of countries with political and financial uncertainty still find North America and Europe to be highly desirable destinations to invest in real estate and seek asset protection due to stable governments and court systems that observe well-established rules of law. Here again, however, demand from the global investor is reported to be softening of late, with many investors waiting to see if prices will be affected by increasing inventory. Because the global population of ultra-wealthy individuals continues to multiply at a rapid clip, the desire and need for these individuals to diversify their property holdings around the globe also continue to grow. This trend is disguised or may be less than obvious because many of the properties that these highly affluent buyers are purchasing are not luxury mansions; instead, they may be condominiums, townhomes, or more modest properties.
The ultra-rich have an affinity for buying quantity, and while they don’t compromise on quality, they do sometimes elect to own smaller homes artfully created instead of mega mansions or showpiece villas. These homes are architecturally designed to create space, whereas mansions have a lot of wasted space and require more substantial costs for day-to-day living and regular maintenance.
URGENCY ON THE FRONT LINES OF LUXURY
Luxury Realtors in markets all around the world have observed that increasing inventory levels for high-end homes do not automatically mean it’s a buyer’s market. Instead, new listings with appropriate pricing are wooing back potential buyers previously frustrated by a lack of inventory, especially among homes for sale above $1 million. Properties in this category continue to flourish not only in North America but globally.
Hotbeds of luxury home sales at the million dollar price point and higher have risen dramatically in U.S. markets such as Seattle, Denver, Dallas, Austin, Atlanta, and Greenwich [Connecticut.] In Canada, volumes at the equivalent level have surged in Montreal and Victoria. In New York City, the same dynamic has propelled sales but at higher price points above $4 million.