The luxury real estate market serves a select group of enthusiastic buyers and exhibits its own unique characteristics. So if you are looking to break into this market or decide whether you should be buying or selling a luxury property, you must first understand current market trends. That’s why we’ve consulted luxury real estate experts, who helped us find out the top trends shaping the luxury real estate market today. But first, let’s find out what luxury real estate is.
Buying or selling a luxury property – which way to go?
Defining “luxury real estate” is tricky since market conditions affect the criteria used to describe it. In other words, it means that what passes for luxury in a small Midwestern town would not cut it in a large West Coast metropolis.
Only the top five to ten percent of listings in any market are considered luxurious. Luxury homes in major cities typically have to ask for prices of $1 million or more. The bar is set considerably higher in major cities like NYC. There, the prices usually start at over $4 million.
Pricing in a given area is determined by several factors related to the property’s location, amenities, and layout. While it’s true that a home may be advertised as having a few high-end features, that doesn’t necessarily indicate it should be priced as such. When determining the worth before selling a luxury home, it’s essential to take a holistic approach.
But what is smarter at the moment – buying or selling a luxury property? To answer this question, let’s analyze current trends in the luxury real estate market.
The housing shortage doesn’t affect the luxury real estate market as much
The severe shortage of available homes is a contributing factor to the skyrocketing price of real estate. Unfortunately,there aren’t enough sellers to match the buyers’ needs. However, this is only affecting entry-level and mid-range homes. On the other side, the luxury market is holding up relatively well. In fact, the number of luxury house listings went up by 15.8% in the fourth quarter of 2021 compared to the same period in 2020
Because only a select few people can afford to shop in the luxury sector, sellers often have to wait for months before a serious buyer approaches. Buyers are flooding the market due to the unexpected bull market, and sellers are eager to start a bidding battle.
The year 2021 saw a decrease in housing stock across the board due to increased demand, but the luxury market fared the best. The total number of luxury listings declined by only 5.1% in 2021 compared to 2020, whereas the number of listings for costly, mid-priced, and inexpensive houses all fell by double digits.
Luxury properties tend to sell faster
The luxury real estate market has grown even faster than the rest in the past couple of years. This industry has seen exceptional growth relative to the overall housing market. A year ago, it took three times as long to sell a premium home as it does today.
In 2022, the average number of days on the market for a luxury single-family home was only 11! Also, the sales ratio in the high-end real estate market was 66.42% in February of 2022. Considering that everything over 20% is regarded as a sellers’ market, it’s a great time to sell a luxury property.
Despite a narrower pool of potential buyers for luxury properties, sales of such properties increased by 41.6% in 2021, compared to 5.9% for mid-priced homes and 7.0% for inexpensive properties.
The market for luxury real estate is the hottest in the South
Knowing how far your dollar will go is a crucial first step if you’re looking to enter the luxury real estate market. And as was previously said, a home’s location is a significant factor in determining its level of luxury.
If you remove the cost of conveniences like parking and storage, the square footage a buyer may afford in Miami is more than double that in NYC. That’s one of the reasons sales of expensive properties rose, especially in the South of the United States. Between 2020 and 2021, expensive Miami real estate sales increased by 101.1%.
Tax breaks are also a crucial deciding factor. Since neither Florida nor Texas imposes a personal income tax, residents who make either of them their primary residence may enjoy favorable tax treatment. Southern states typically have lower construction costs, making it more affordable to develop high-end residences there. Plus, you can always count on easily finding and hiring reputable movers to help you have a smooth long-distance move and reach your new home stress-free.
Prices of luxury homes are increasing
A rising trend in home prices is creating new benchmarks for lavishness. The average price of luxury property rose 14.7% from 2020 to 2021. While this shift occurred, the median number of days on the market decreased by 38 days yearly. This is by far the largest decrease relative to all housing categories. Also, homes in areas where prices have consistently risen over the years continue to increase in value.
The popularity of owning a second luxury property is growing
Historically, the worry that one wouldn’t use a second property discouraged many potential buyers. Due to a lack of vacation time, the secondary residence would sit empty for most of the year, representing an unnecessary outlay of resources.
However, the situation is different when it comes to buying luxury property nowadays. More people can now buy second homes because they are no longer tied down to a single area for work. Today, mountain and coastal resort towns have become common stops on work-related vacations.
Co-ownership is on the rise, too. This is true not just for the affordable housing market but also for the luxury housing market. Some buyers are interested in a second home that provides all the comforts of a luxury residence. Most people who own second homes only stay there periodically, so buying one might be a financial burden unless you become a co-owner with someone else.
So what’s better nowadays – buying or selling a luxury property?
As you can see, buying or selling a luxury property comes with extensive benefits. However, to decide what option is the best for you and your unique situation, make sure to reach out to luxury real estate experts who’ll be able to help. Best of luck!
The Big Story
July sees a huge mortgage rate drop and more inventory on the market
- In July, the average 30-year mortgage rate declined significantly, by 0.50%, positively affecting affordability. Economists predict that mortgage rates have already seen their peak this year, near 6%, and will stabilize around the current rate of about 5%.
- Homebuyers had more inventory to choose from than this time last year, which indicates that the market is becoming healthier.
- The economy feels uneasy, but the housing market isn’t showing signs of a major reversal.
Note: You can find the charts & graphs for the Big Story at the end of the following section.
Home prices continue to reach new highs even as demand declines
Home prices generally stagnate this time of year, so it’s more challenging to ascribe causation for why price growth has decelerated nationally to economic factors — inflation, mortgage rates, supply shortages, and looming recession — when they coincide with long-term seasonal trends. Historically, prices increase in the first half of the year and flatten in the back half. Prices in 2020 bucked this trend, increasing through October before flattening in the last quarter of the year. Although prices rose much higher in 2021, the historical trend returned. This year has, of course, come with different economic and psychological drivers than 2020 and 2021, especially in the housing market.
For many, if not most of us, the pandemic brought us largely inside our homes, increasing the desire for larger, nicer private spaces. The mass movement to remote work meant that proximity to an office, usually a primary selling point in major metro areas, mattered less or not at all. Many of us experienced our home spaces, work spaces, and communal spaces becoming one, and realized that the home we usually spent little time in would simply no longer work for us. This need for a bigger space, combined with extremely low-rate financing, a substantial increase in disposable income, and more time to look for a new home created a boom in demand in an already undersupplied housing market. As a result, the median sale price rose higher and faster than any other point in history, up 36% over the past two years according to data provided by the U.S. Department of Housing and Urban Development. For reference, in the eight years preceding 2020, the median home price rose a total of 38%.
As we know, housing isn’t the only asset to rise since 2020. Nearly everything has become more expensive, and inflation (CPI)*, which has rarely ever risen above 5%, ticked above that mark in the summer of 2021 and has only increased since then. The Federal Reserve, which has a dual mandate of price stability and maximum employment, has one major tool: raising the federal funds rate†. By doing so, the Fed indirectly affects the debt markets, thereby increasing other interest rates, such as mortgage rates.
In the first half of this year, the average 30-year mortgage rate rose nearly 3%. It’s hard to overstate how significantly that rate increase affects affordability. To hopefully simplify the explanation, we will use a $1 million home that is fully financed for illustrative purposes. For a $1 million home, a 3% increase in interest rates raises the monthly mortgage cost by 42%. It’s fairly safe to say that income hasn’t risen by 42% for most people, which means that many potential buyers are priced out of buying homes, softening demand. For those potential buyers waiting for a correction of the residential real estate market, home prices would have to decline by 30% for the monthly costs to be equivalent — that is, $700,000 at 6% is the equivalent monthly mortgage cost of $1 million at 3%. If the housing market experienced such a large correction, there would likely be much larger concerns in the global economy than home prices. Barring a collapse of the entire financial system, supply would simply be too low for a major correction. Luckily for potential homebuyers, mortgage rates dropped by 0.50% in July, and many economists predict that the mortgage rates will flatten out around 5% even as the Fed continues to raise the federal funds rate. This is partially because the market largely understands and has already accounted for the Fed’s rate hike path, which will continue until inflation begins to meaningfully decline and recession worries wane.
The economy has felt a little uneasy lately — a classic “will they, won’t they?” when it comes to the recession — but for now, we aren’t technically in a recession because job numbers are too good. Demand for homes has clearly softened, which is fine in a severely unbalanced market. We will likely see less significant price appreciation in the second half of the year due to seasonal norms and higher mortgage rates. The market remains competitive and homes are selling quickly. However, buyers are seeing more inventory than last year, which is good for the market. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.
—* The Bureau of Labor Statistics (BLS) collects the prices of approximately 94,000 items from a sample of goods and services to calculate the Consumer Price Index (CPI).† The federal funds rate is the interest rate that banks get to borrow from the Federal Reserve. Also known as the Fed’s benchmark rate or the risk-free rate.
Big Story Data
The Local Lowdown — Miami-Dade, Broward, and Orange Counties
- Like the rest of the country, home price growth is slowing after two years of substantial gains. However, we are still reaching record highs for single-family homes in Miami-Dade and Broward counties and condos in Orange County.
- Demand for homes is softening as sales decline due to a mix of seasonality and higher rates, which will help to alleviate the highly unbalanced markets in the selected counties.
- New listings declined in July, a seasonal norm, which means that inventory in 2022 will likely peak at historically low levels.
Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
Is the market balancing? Tentatively, maybe!
Median single-family home and condo prices remain at or near all-time highs but it’s clear that price gains are slowing, which is a seasonal norm. These price movements are well within the bounds of normal price variability, but after sustained large price gains, it feels like any downward movement signals a market correction. As mentioned in the Big Story, prices tend to stagnate in the summer and fall months when inventory is at its highest, so we aren’t ringing the alarm bells quite yet. Homes over the past five years have become generally less affordable, yet demand boomed. With 30-year mortgage rates potentially settling around 5%, fewer potential buyers will participate in the market than they did last year when mortgage rates were at all-time lows.
Supply is still historically low, which will protect prices from experiencing a major downturn. Prices will likely follow a similar trend as last year, holding relatively steady through the summer and fall months. If you’re following home prices closely, as we tend to do, you don’t need to worry about losing equity in your home, or softening demand, or even an official recession — so long as it doesn’t affect your job. The housing market remains incredibly strong in the selected Florida counties.
Housing inventory had minor increases or decreases depending on the market, but remained incredibly low. We entered 2022 with the lowest inventory in history across markets, and we’ve only seen meaningful increases in Orange County. However, with the substantial drop in sales and new listings from June to July 2022, the peak inventory levels for 2022 will undoubtedly be the lowest on record.
The decline in sales indicates that demand is softening. We aren’t saying that demand is low, but it’s trending closer to balanced between buyers and sellers than we’ve seen in years.
Months of Supply Inventory inches toward a more balanced market
Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The average MSI is four to five months in Florida, which indicates a balanced market. An MSI lower than four indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). Currently, single-family home and condo MSIs are low, indicating a sellers’ market, with the exception of Miami-Dade, which has moved toward balanced for single-family homes and condos.
Local Lowdown Data
Despite the fact that the Coronavirus epidemic has delayed the investment frenzy of High-Net-Worth Individuals (HNIs), property market recovery has increased the uber-interest affluent in the real estate business. While the industry did encounter a small slowdown last year due to the second wave of COVID-19, it rapidly rebounded, and reports predict that it will continue to grow significantly in 2022. Whether it’s the primary home, a vacation home, or an investment property, HNIs are more than ever determined to invest in it. So, if you’re looking to expand your portfolio, here are the reasons why a luxury home is a great investment in 2022!
It’s vital to remember that not all high-priced properties qualify as luxury real estate. True luxury residences have qualities and features that set them apart as distinctive, exclusive, and more desired than the majority of other accessible alternatives.
Luxurious lifestyle & comfort
Luxury houses in Mississippi, for example, provide exquisite settings on expansive acre lots. Nature is all around, and it provides immediate leisure locations and activities. The beach, towering trees, running streams, bayous and rivers, and dazzling lakes are all close by, with easy access from the property. These outstanding locations also provide unrivaled peace and seclusion.
In addition, many luxury houses, particularly newly constructed or recently renovated buildings, have high-end and high-tech amenities and features. From the home gym, swimming pools, home theater, saunas, and full-on entertainment centers, with luxury homes, you are not just buying a property; you are buying a whole different lifestyle.
While luxury real estate often has a considerably higher price tag, a recurring tendency is that it also has large increases and declines when compared to homes that are not labeled high-end. When it comes to investing in high-end homes, time is everything, just like it is with any other large-scale investment.
Following the recent real estate market collapse, experts anticipate that the recovery from the recession will be unequal across the United States. They estimate it will take until 2025 for everything to settle down. However, the good news is that if you want to invest in luxury real estate, now is a fantastic moment to do it. The luxury property has a higher possibility of providing a superior long-term ROI.
Another factor is that luxury residences have the advantage of being a performing asset, which means that they serve a functional purpose while growing in value. As a result, buyers consider them to be the ideal investment that guarantees increased earnings. Therefore, the real estate market predictions and latest analysis indicate that a luxury home is a great investment in 2022. Maybe even the best one you can make.
Security is also a significant aspect for most purchasers. Ultra-luxurious residential complexes also ensure that your community, including the individuals who live in your building, are all educated, well-off, and from a solid background. To entice home purchasers, innovators are also stressing top-of-the-line security features in properties. Inventors ensure that luxury home systems have round-the-clock protection, which includes security assistance as well as high-tech gadgets.
Furthermore, people who invest in luxury real estate want to be certain they will have all the privacy and peace they require. They don’t want to deal with people trespassing and bothering them all the time. That’s why gated communities are very appreciated and desired in the luxury real estate market.
Fortunately, in this day and age, there are some pretty sophisticated security measures in place that will most definitely make your residence secure more than ever before. So, when it comes to privacy and security, a luxury home is a great investment in 2022.
Technology and IT advancements have gone a long way toward elevating the living experience in high-end residences. Most home buyers nowadays seek cutting-edge technology in their homes, which includes entire home automation, solar generators, rainwater harvesting, remote control windows, panel boards, and more. These ultra-luxurious properties offer all of the conveniences that make house purchasers’ lives more comfortable and definitely easier.
These smart homes provide not only comfort but also security and safety. You can control everything in these homes from your phone, and there are even voice-controlled features. Therefore, this is truly a luxurious style of living that not everybody can afford.
The advantages of raising your family in a luxury home go beyond just convenience. Luxury home developments are also viewed as the ideal place for one’s children to grow up and adults to socialize in. After all, such undertakings are really the result of a community with a particular level of culture, education, and beliefs. In other words, if you choose to buy this type of home, you’ll definitely be surrounded by better neighbors. This is an excellent reason why a luxury home is a great investment in 2022. It’s better for your kids and yourself.
Many wealthy people want to acquire a nice home because it offers them a sense of pride and prestige. They want to demonstrate to the world that they are living and experiencing the finest lifestyle imaginable. In addition, they have a lot of money, and what better way to spend it than on that gorgeous mansion that everyone wants? They want a house that proclaims their wealthy lifestyle to the world, rather than merely a postal address, which is extremely conventional and common.
After all, these people work hard every day to earn this money, so why not invest it in something that will show how hard they work, right?
Moving to your new luxury home
As you can see, the demand for luxury real estate is on the rise, and motivated investors are all over the US, especially in California and Florida. So, if you found the perfect luxury home in Florida for you and your family, you should start planning the relocation process, especially if it’s a long-distance relocation in question. What you should do is find a trustworthy moving company that will help you reach any part of the state trouble-free. After all, you’ve just bought a luxurious home to embrace a more comfortable lifestyle, so the relocation to it should be the same as well.
The fact is luxury real estate is on the rise, and it doesn’t plan to stop booming. Therefore, if you’re looking for reasons why a luxury home is a great investment in 2022, this article gave you a few pretty solid ideas, from security and privacy to comfort and a guaranteed increase in value. If you’re financially stable enough, there is practically no good excuse not to invest in luxury real estate right now. This is a once-in-a-lifetime opportunity to do something good with all that money. So, what are you waiting for?
Welcome to our October newsletter, where we’ll explore residential real estate trends in Miami-Dade, Broward, and Orange Counties in Florida, and across the nation. This month, we examine the state of the U.S. housing market now that much-needed supply has come to the market. We also explore why the worker shortage may not be as detrimental to the economy as was originally expected because of the renewed growth of entrepreneurship.
With the increase in supply, we’ll probably see the beginning of some market cooling — but in the context of the hottest housing market in history. Housing inventory in the United States continued to rise in August, up 30% from the record low in April 2021. We’re happy to see more homes on the market because they will help satiate the high buyer demand. Although this increase in housing inventory is meaningful, there are still 74% fewer homes on the market than a year ago. The housing market will likely start to see some price corrections as it returns to a steadier state of growth.
While we, at first, worried that the worker shortage could hurt the economy, it looks like the rise in entrepreneurship is helping to boost production and improve the economy. We often look at jobs to gauge the health of the economy: more employed workers usually means more production and more wealth, which, in turn, means appreciating asset prices. For many months, unemployment stood at around 10 million workers; however, we have started to meaningfully close the unemployment gap, and unemployment has been reduced to 8 million workers. As risks from the delta variant wane, we’ll likely see more unemployed workers reentering the workforce.
Despite the high rate of unemployment and record number of job openings, U.S. production is climbing rapidly. In terms of GDP, which is the broadest measure of goods and services produced, our economic recovery could reach where we would likely be if the pandemic had never happened within the next year. It cannot be overstated how rare it would be to return to pre-recession GDP, but we might just get there. A potential factor in the rise of both production and job openings is the resurgence of entrepreneurship, which is often associated with higher production.
We remain committed to providing you with the most current market information so you feel supported and informed in your buying and selling decisions. In order to better explore how the above national trends in the economy and housing market are affecting selected Florida counties, this month’s newsletter will cover the following:
- Key Topics and Trends in October: Current trends in the labor force will have long-term effects on the housing market and overall economy.
- October Housing Market Updates for Selected Florida Counties: Single-family homes and condos are undersupplied relative to demand, causing prices to remain near peak levels.
Key Topics and Trends in October
In the long term, employment and GDP reveal much about the economic climate and typically trend with housing prices. GDP, according to the U.S. Bureau of Economic Analysis, gained 1.6% quarter-over-quarter in 2nd Quarter (2Q) 2021, which is about 1% higher than the long-term quarterly growth rate of 0.6%. To get back to pre-pandemic GDP levels, we need to continue to outpace the long-term growth rate. The substantial infusion of cash into the economy has boosted GDP, and we are on pace to fully recover.
Another large government-sponsored infusion of cash into the economy is very unlikely to happen. We may, however, have another source of economic stimulus: the massive growth in entrepreneurship over the last 16 months. From 2004 to 2019, the United States averaged 2.8 million new business applications per year. In 2020, there were 4.36 million, and in 2021, there have been 3.68 million as of August. This means that over the past 20 months, the United States has seen 8 million new business applications.
The competitive nature of our economy incentivizes new business owners to produce, creating jobs and stimulating growth. While new businesses are not as stable as more mature companies, they are often more nimble than larger companies and can produce with fewer hurdles.
Single-Family Home Inventory
Inventory has declined steadily over the last two years. In 2021, more new listings have come to market, but these are quickly offset by the high number of sales. To fully understand the current inventory, we must look at it in the context of last year. In 2020, fewer people wanted to leave Florida and more people wanted to move to the area, increasing the population and driving inventory down to record low levels. New listings, therefore, improve the current market conditions. However, new inventory has not been able to meet demand, causing inventory to decline further. In September 2021, the selected counties had far fewer homes for sale than the year before. The sustained low inventory will likely cause prices to appreciate throughout 2021.
Condo inventory has been experiencing a gentler trend down over the last two years. We are seeing more condos come to market, which are immediately offset by sales. The demand is there, but not to the extent of single-family homes.
In summary, the high demand and low supply in the selected Florida counties have driven home prices up over the last year, but the huge price appreciation is slowing. Inventory will likely remain historically low this year with the sustained high demand in the area. Overall, the housing market has shown its value through the pandemic and remains one of the most valuable asset classes. The data show that housing has remained consistently strong throughout this period.
We expect the number of new listings to slow in the coming months. However, the current market conditions can withstand a high number of new listings, and more sellers may choose to enter the market to capitalize on the high buyer demand. We expect the high demand to continue, and new houses on the market to sell quickly.
As always, we remain committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home or condo.