Luxury homebuyers are shifting locales
Wednesday, December 04, 2019
The market for luxury homes regained its footing in the third quarter — the first positive quarter of growth this year. Sales of second and vacation homes also are rising.
Unexpectedly, activity was greatest in so-called secondary markets, notably areas that are experiencing migrations of more affluent homeowners and real estate investors. These trends should help to widen the sphere of opportunities for interior designers seeking to acquire more high-end clients.
Following three quarters of declines in sales and price increases, the luxury home market stabilized during the summer months and early fall. Real estate brokerage website Redfin reported sales of homes priced at $1.5 million or more were up 3.2% year-over-year, slightly above the annual growth for homes priced below $1.5 million.
The average price of homes selling for $1.5 million or more nudged up by 0.3% for the year. Price gains varied considerably by location, from a phenomenal 128% year-over-year increase in West Palm Beach, Florida, to a 17.6% annual decline in Charlotte, North Carolina. About 1 in 5 luxury homes sold for more than the asking price, down from around 1 in 4 a year ago.
The boost in buying brought more sellers into the market. New listings for luxury homes grew by 6.0% compared to the same period in 2018, and overall inventories were up 9.3%. By comparison, the supply of homes selling for under $1.5 million was down 6.9% from the third quarter of 2018.
Demand also has been growing for second and vacation homes, finds the National Association of Realtors. According to its 2019 U.S. Vacation Home Counties Report, between 2013 to 2018, the median sales price in vacation home counties increased at a slightly higher pace of 36% compared to the pace of increase of all existing and new homes sold, at 31%.
Based on Black Knight property data, the study found the median prices in the top 25 most expensive vacation home counties in 2018 ranged from nearly $272,000 (Sussex, Delaware) to $1.6 million (Nantucket, Massachusetts).
Substantial growth in household income, tax cuts and lower mortgage rates have made luxury and vacation properties more attractive. Other factors, though, are causing buyers to look for properties elsewhere than in traditional high luxury markets.
The Institute for Luxury Home Marketing’s Luxury Market Report for November 2019 states the changes in the tax code that capped deductions for mortgage interests has led to a significant migration from high-priced, premier markets such as San Francisco; Los Angeles; New York; Chicago; and Washington, D.C., to communities in more tax-friendly states, such as Florida, Nevada and Texas.
This has resulted in high growth in luxury home purchases in secondary markets such as Phoenix, Atlanta, Las Vegas, Portland, Austin, Dallas, Nashville, and parts of Florida and Virginia.
Younger, affluent homebuyers are migrating to more affordable locales that also offer a higher quality of life, such as Seattle; Charlotte; St. Louis; Denver; and Richmond, Virginia, as well as Nashville and Austin. Florida is the hottest destination for luxury homes at present, attracting retirees and near-retirees as well as investors looking for better returns. Buyers are bypassing Miami and Palm Beach for more attractive properties in West Palm Beach, Clearwater and St. Petersburg.
On the whole, though, the luxury home market has been fairly stagnant this year, and experts wonder whether the third quarter gains are a trend reversal or a temporary blip.
A recent Hot Property newsletter from the Los Angeles Times points to sudden price reductions in luxury homes in Southern California as a sign that sellers are trying to take advantage of the third quarter momentum in the hopes of closing before the end of the year. It notes that sellers usually will take their homes off the market in early December in order to come back with a fresh offer in January, which will affect end-of-year sales figures.
Furthermore, political and economic uncertainties could drag on the market in coming months. The Luxury Market Report cites a recent PwC report that cautions the luxury real estate market will be “more volatile” in the coming years due to political divisiveness, tax policies, and media coverage of particular markets. Luxury real estate news website Mansion Global predicts that the 2020 general election and expectations of subdued economic growth will dampen sales of luxury homes next year.
At least for the short term, the good news for interior designers is that the increase in activity in a number of secondary markets around the country should mean that more designers will have an opportunity to compete for high-end clients and grow their businesses. The recent spate of luxury purchases may translate into design projects in 2020 as buyers settle into their new homes and contemplate how they want to improve them.
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