Many Americans are struggling to close the deal on a starter home, but at the other end of the economic scale, the luxury-home market is going gangbusters, according to a realtor.com® analysis. Sales are up 25% from a year ago, despite the fact that the homes have grown more expensive.
The analysis looked at the entry-level luxury price tier, defined as the top 5% of all residential sales, in 91 U.S. counties. In the luxury markets analyzed, the entry-level price for luxury properties increased an average of 4.6% year over year. And in 51 of those markets, the luxury home tier has an entry point of at least $1 million.
“We’ve seen a substantial increase in buyer demand for high-end homes—even with prices and costs of ownership swiftly on the rise,” said Javier Vivas, director of economic research for realtor.com®, in a statement. “Today, $1 million won’t get you a luxury home in most major markets.”
That’s certainly true along the Northern California coast, which boasts four of the top 10 fastest-growing luxury markets in the country. The San Francisco Bay Area markets of Santa Cruz, San Mateo, Santa Clara, and Monterey have all been growing at an accelerating pace, with entry-level luxury prices now up 12% to 14% year over year.
According to Patrick Carlisle, the San Francisco-based chief market analyst for real estate company Compass, “$1 million to $2 million is considered our affordable house segment.”
“We had an extremely strong second quarter,” Carlisle adds. “Sales of homes of $2 million and above went up by 20%.”
The engine driving this growth is the Bay Area’s strong economy, Carlisle says, particularly the major tech companies Google, Facebook, and Apple. These companies, all with headquarters in Silicon Valley, pay their employees well in salary and stock. In addition, smaller companies that have gone public have seen their employees become millionaires overnight.
“IPOs have come back into style this year,” Carlisle notes.
So what do these masters of the universe demand in the City by the Bay? When it comes to condos, luxe amenities are important, but great views are even more valued, Carlisle says. For single-family homes, on the other hand, the ability to walk to shops and restaurants is key, he says.
Fierce competition in the Denver area
In Denver, which has seen home prices shoot up in recent years, Boulder, Douglas, and Denver counties all experienced double-digit annual price growth in the luxury tier. Those homes were also selling fast, spending a median 89 days on market, which is 15% fewer than the year before.
“Overall, inventory is just crazy low, and we have a lot of people moving here,” says Leo Rowen, a real estate agent with Re/Max of Cherry Creek, an upscale neighborhood in Denver.
The price tier of $1 million to $1.5 million, in particular, is “a really tough market, because there’s not much inventory,” Rowen says.
As an example, he cites a home he recently sold in this market that was listed at $1.185 million. It got 34 showings in two days, and five offers, all of around $1.2 million—and one was all cash. The winning buyer allowed the seller to rent back the home for three months.
In contrast to San Francisco, tech is only one part of Denver’s boom, says Rowen. He says he’s seeing buyers in a variety of fields, and many of them from the West Coast, fleeing even higher prices.
“A lot of companies are realizing that it’s a great lifestyle, there’s great weather, so they’re relocating here,” he says.
Yet while people are willing to pay more, they’re not necessarily expecting to max out on a McMansion. Buyers these days will “settle” for 3,500 square feet rather than reaching for 6,000, Rowen observes. Lot size, on the other hand, is still highly valued, for nice front and back yards.
Moving fast in Seattle and Nashville
Just north of Seattle, Snohomish County is currently the fastest-moving luxury market in the country. Luxury properties there and in Seattle’s King County are spending a combined 48 days on market, which is a decline of 3% year over year. The entry-level luxury price in those counties is up 13% year over year.
In Nashville, TN, meanwhile, Williamson and Davidson counties saw the median days on market for luxury properties drop to 71 days, a 12% decline year over year.
Bright spots in NY and NJ: Queens and Jersey City
While luxury prices remain stagnant in most markets in New York and New Jersey, two bright spots were the counties of Hudson in New Jersey, which includes Jersey City, and Queens in New York, which is a borough of New York City. These two markets, which offer a lower entry point for luxury homes, compared with Manhattan and Brooklyn in New York, saw well-above-average, double-digit price growth. The median days on market of luxury properties in Hudson and Queens counties combined is 66 days, down 29% year over year.
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Source: Housing Trends Feed