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The Luxury Market Is Not Coming Back … IT IS BACK!

The real estate market has been going through some challenging times this year. The National Realtors Association’s (NAR) last Existing Homes Sales Report showed that sales were down 25.5% from the same time last year. Media headlines screamed that the housing market was screeching to a halt the following day.

There is a segment of the market that is actually flourishing however: luxury homes.

According to NAR’s 2Q Report on Home Sales Statistics, every price ban under $1 million showed a decrease. Here are the numbers:

  • Homes less than $100,000: sales down 17.1%
  • Homes $100 -$250,000: sales down 35.3%
  • Homes $250 – $500,000: sales down 27.9%
  • Homes $500 – $750,000: sales down 12.8%
  • Homes $750,000 – $1 million: sales down 6.7%

At the same time, the sales of homes over a million dollars are UP 6.1%. Many people are shocked that the upper-end market is beginning to recover. It seems that this trend will continue as we move forward.

Unity Marketing, a market research firm specializing in the luxury consumer, just completed their study, Home Is Where the Style Is, which showed that the luxury home buyer has plans to re-enter the market in a big way. When asked if they plan to purchase a home in the next twelve months:

  • 11% responded that they would build a new primary residence (up from 3% in 2008)
  • 11% responded they would buy a new primary residence (up from 6% in 2008) and
  • 11% responded they would buy a second/vacation home (up from 2% in 2008)

Why this sudden resurgence in upper-end purchases?

We think there are three major reasons:

1. The affluent were less impacted by the economy.

An article in the Wall Street Journal reported the number of millionaires is soaring:

“… the number of American households with investible assets of $1 million or more rose 8% in the 12 months ended in June … There now are 5.55 million U.S. households with investible assets of $1 million or more.”

2. The wealthy understand investment cycles.

There is no doubt that the wealthy will have a better feel as to when the market will return. They are more accustomed to the up/down movements in the cycle of any investment. They are seeing value in today’s real estate and acting on what they perceive as an opportunity.

2. Mortgage rates for luxury properties are at historic lows.

Jumbo interest rates have fallen a full percentage point in the last year (from approximately 6% to 5%). The difference in a $1,000,000 mortgage payment from last year to now is $3,216.40/month. The annual savings of over $38,000 may be too good to pass up.

Bottom Line

With property choice almost unlimited, values at pre-bubble prices and interest rates at historic lows, it might make sense to buy the home or vacation spot your family always dreamed of. It appears the wealthy are doing just that.


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3 replies
  1. Shawn Shackelton
    Shawn Shackelton says:

    Great information. Those in the “luxury market” are very savvy and in my opinion have been waiting for a time like now to jump back into the market and get the homes they have been watching, for great prices. This also gives those selling the hope they have been waiting for with market activity up. Make no mistake though pricing is still key!

    Reply

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  1. […] as Steve Harney posted, jumbo mortgage rates have dropped from 6% to 5% which could mean savings of over $38,000 a year on […]

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