Luxury Home Sales still Ascendant as Buyers Shift

Redfin, the large national real estate
firm based in Seattle, is reporting that, while sales of homes costing over $1
million is still outpacing the rest of the market, the source of these sales is
changing
.  The company says that the
luxury housing market, which was the first segment to recover after the housing
crisis, continues strong, driven by a record high stock market, low interest
rates and by foreign investors.

Sales of home costing more than $1 million
increased by 9 percent in the third quarter of 2014 even as all home sales were
down 1.2 percent
when compared to the third quarter of 2013.  However Redfin says that overseas investment
in these homes is beginning to flag and those markets which have benefitted the
most from foreign investors are seeing “a steady and dramatic decline in sales
of million-dollar-plus homes.”  Those
cities where there is less reliance on investors, both foreign and domestic,
are still seeing a steady increase in high-end sales.   

 

 

The
definition of luxury is, of course, as local as any other facet of real
estate.  Redfin points out that there are
parts of the country where a million bucks will buy little more than an average
home and many California cities fall into that category.  Thus it is not surprising that four of the
top five cities in terms of expensive home sales were in California; San
Francisco, Los Angeles, and San Jose with San Diego at number five.  But other cities that are considered
affordable were among the top ten – Chicago in fourth place and Houston in
sixth, both beating out Washington, DC (number 7); Seattle (8), and Boston (9) which
have higher housing costs in general. Another
California city, Newport Beach, rounds out the top ten list.

The average increase for the 385
cities that had million-dollar-home sales in the third quarter was 17 percent
but in Houston those high-end sales were up 42 percent from the third quarter
of 2013.  Redfin said this increase was “driven
by a shift in homebuyer demand toward luxury properties.”  Redfin agent Tara Waggoner said that Houston
benefits from a strong and diverse job market and that many people are coming
into the area through job transfers from the coasts.  “Those people are shocked at how much home
they can get for $1 million in Houston,” she says.

Redfin looked at seven markets which
have previously benefitted from heavy international buyer participation.  The seven, Los Angeles, Orange County, Riverside-San
Bernardino, Miami, Orlando, Fort Lauderdale and Las Vegas, still have strong
sales in the $1 million plus category but growth has stalled, dropping on
average from 46 percent to 5 percent. 
However in Los Angeles and Orange County growth in million-dollar-home
sales has flatlined; in Las Vegas it has been negative for the last three
quarters.

 

 

Like foreign investment, all-cash
deals are also no longer the norm.  In
those seven cities that have relied heavily overseas investment cash
transactions
have fallen from about 48 percent of million dollar sales at the
beginning of this year to 22 percent in the third quarter.  In Los Angeles cash sales have fallen to 10
percent.

 

 

With
rising interest rates these expensive homes will become even more costly while
at the time the supply of these homes was down 13 percent from a year
earlier.  Redfin says that, “Tight
inventory
means that any post-crisis deals in high-end real estate have all but
disappeared.”

Looking forward the company says
that luxury home sales will continue strong for the rest of this year and the
next but, at just under 3 percent of the market, those sales will have a
limited impact on overall market growth. 
“This sector of the market, particularly in the places that have
typically had strong foreign interest, will need traditional (and well-heeled)
buyers to offset disappearing demand from international investors.”

Article source: http://www.mortgagenewsdaily.com/12032014_luxury_home_market.asp

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