It was predicted last year that the new tax laws in the US, limiting deductions on mortgage interest and property tax, would cause a slowdown in the overall real estate market. However, it would seem that they have had very little effect. According to the May 2019 edition of the North American Luxury Market Report by the Institute for Luxury Home Marketing, the reality is that other factors have had more influence in the luxury market for both the US and Canada. It has been the impact of global economic uncertainty, changes in purchasing decisions, and relocation away from high local taxes that have caused the most significant differences.
Lawrence Yun, NAR chief economist, stated in January 2019, “The forecast for home sales will be very boring—meaning stable.” And, as we can see from the North American statistics (that represent over 65 of the top affluent cities), this statement is for the most part accurate.
In a recent report from Mansion Global, it was stated that while the average entry price for a luxury property has risen to $1.26 million in February—a 3.9% rise—the average market price for luxury homes has dropped 5.1% compared to the same time last year.* It must be clarified that Mansion Global focuses on the Top 5% of the market, whereas The Institute focuses on home sales in the Top 10%.
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Are any luxury markets still growing?
As recognized in previous reports, there are markets still seeing growth in their sales and price points, typically lower-priced or new luxury markets such as Houston and Austin in Texas, Nashville in Tennessee, Arlington in Virginia, and Montreal and Ottawa in Canada. However, the majority of luxury communities have seen a plateau in their sales and home values. And a number of traditionally expensive cities, whose price points are typically higher than average, are seeing a decline.
To gain a perspective of the luxury market from the ground up, we are turning to local experts to provide their insights on the trends and expectations of this transitioning market. Look to see how these findings could also prove relevant to your market or property type.
Local market insights for Vancouver, Chicago, and Scottsdale
We have chosen to look at three diametrically opposite cities. Vancouver on Canada’s west coast is recognized as one of the newest desirable luxury cosmopolitan cities to have emerged in the last 10 years. Chicago, Illinois, well-heeled and established, is considered to be a rock of stability in terms of its real estate market. And Scottsdale, Arizona is the epitome of retiring wealth and second homes for snowbirds.
Between 2008 and 2016, Vancouver’s real estate prices surged to a point that local residents struggled to purchase within their own city. In efforts to tame the market, 2016 saw the implementation of a slew of taxes and regulations. These taxes are mainly applicable to foreign investors and non-residents, who many considered to be the reason behind this explosion.
The luxury market was the first to feel the impact, with the number of sales dropping 26% in the $1 million price range and a staggering 49% for the $4 million plus during 2018. Nearly two years later, the lower end of the luxury market is faring better; however, the upper end is still seeing a softening in its price points.
“Affluent buyers are beginning to return as they realize it’s a great time to buy in Vancouver,” says Elizabeth McQueen, a Top 5% Luxury Professional in Vancouver with over 25 years of experience. “Especially for buyers looking for the lifestyle associated with living in this cosmopolitan city.”
Elizabeth continues, “Prices have dropped and sellers have just needed to take time to become re-educated with this new paradigm. Just look at any established luxury city throughout the world—London, Paris, New York, Sydney—they have had heavy taxes on their luxury homes for many decades.”
This may be a cautionary tale to luxury real estate markets that are currently experiencing exponential growth. However, Elizabeth says that if you look at statistics over a long period, market corrections are always followed by prices going higher once the market returns. After all, the demand for land and property still exceeds supply.
Chicago, considered to be the city of steady real estate growth, reported in 2018 that the luxury market of $1 million plus grew only 1.7% compared to a big year of 10% in 2017, and the forecast of a slower 2019 has proven true to date.
“Most of this year’s luxury sales have been for the new luxury condominium market,” says Patrick Ryan, another long-term veteran with over 15 years of experience as an active luxury expert, consultant, and managing broker.
“The demand far outweighs the supply for these new luxurious 1,200-1,400 square foot apartments, which has caused an anomaly in our market as they fetch extraordinary prices; whereas older condos are proving harder and taking longer to sell—and this disparity could be the reason for a decrease in the number of sales.”
Patrick’s advice to sellers in more established homes is to recognize that in today’s market their home could be considered dated as the vast number of affluent buyers are looking for turnkey properties with all the modern accoutrements.
“Time and immediate satisfaction are of the utmost importance to affluent buyers—they simply do not want to waste their time doing renovations, and they are willing to pay the price. Today’s buyers have all the information at their fingertips, and if your home isn’t marketed to showcase its significant differentiators, they will move by quickly to find the home that does check their boxes.”
Patrick also sees a trend of both technology and medical industries moving into Chicago. He forecasts the downtown infrastructure, public transportation, and affordability compared to west coast cities will probably spearhead the luxury market in future years. This is a trend that is being emulated in many of the secondary luxury markets in the central and eastern areas of the continent.
Scottsdale, long associated with being a winter home destination for snowbirds (retirees looking for great weather for 9-10 months of the year) and having a lower cost of living (and let’s not forget golfing), is experiencing an increasing influx of new homeowners from California, Seattle, Chicago, and New York.
Jordan Ayan, partner and founder of The Lifestyle Collection, states, “The most common reason I hear that people are looking to move to Scottsdale is because ‘taxes are killing them in other parts of the US’ and they are ready to either downsize or enjoy a property that offers better amenities for their money.”
To date, statistics show a slow start of the traditionally busy spring/summer season throughout North America, but perhaps Scottsdale will be indicative of the trend to come? “Scottsdale’s busy season typically starts in October and runs through to May, but this year buyers came to the table rather late with sales starting to close in March and April,” says Jordan.
“Buyers are definitely more educated. They know the inventory and have often been researching the stats for months. Their buying trends are moving towards smaller homes with large storage spaces and the lock and leave properties.”
Agreeing with both Elizabeth McQueen and Patrick Ryan, Jordan explains that the other major trend is for new or fully renovated properties. These buyers, typically young empty-nesters or retirees, are looking for turnkey properties with little associated work.
Despite the differences in these markets, it is evident that the trends we’ve seen over the last 6 months, such as smaller properties, new or completely renovated turnkey homes, lower price points to allow multiple location ownership, and greater access to lifestyle and local amenities, are the key aspects in understanding today’s luxury real estate market.
*Information from Mansion Global based on 85 luxury markets included in their index of Top 5% of the sold market.