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LUXURY: A GROWING NICHE MARKET

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 the
financial crisis ten years ago, central banks around
the world initiated extraordinary monetary policies
and slashed short-term interest rates to zero. These
policies reinvigorated an appetite for risk taking and
boosted returns from assets like stocks and real
estate, but monetary authorities are now unwinding
the emergency measures. The Federal Reserve
began hiking short-term rates in December 2015.
Globally, home values have seen substantial
appreciation since the depths of the recession in
2009 and the feverish gains in prices seem to be
acting as a natural brake on the market as elevated
home prices have already impacted affordability
for first-time buyers. Higher mortgage rates would
further crimp affordability. Price stabilization, in
turn, will naturally cool the appetite of real estate
investors, as will the situation of having long-time
homeowners not moving in the volumes expected.

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.

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