The major property market has come under fire as agents around the world continue to experience record levels of activity. But increasingly, there is growing concern about inventory, which remains at an all-time low — even at key price points. This trend is most pronounced in the United States, where bidding battles on select properties are still rampant and aspirational buyers are getting priced from lower-end luxury properties.
According to the National Association of Realtors® (NAR), only 6% of all home sales are for properties in the $1 million+ price point.
Because of this supply-demand imbalance and the subsequent spike in prices, markets that were once tributaries – that is, satellite cities – have now become luxury destinations, such as those outside New York City or the area around Seattle.
The post-COVID scenario – where remote or partially remote work environments remain in place – will continue to accelerate this trend.
For example, pre-COVID, a 90-minute journey from Manhattan was considered an outlier. But now, if one needs to be in the city two or three times a week, the long journey is no longer considered difficult. This has “expanded” traffic to more suburban areas, even rural communities, especially in northern Connecticut.
Where else is the money going? Atlanta’s luxury real estate sector has become increasingly expensive as tech companies like Microsoft open new campuses there.
Charlotte, North Carolina is also feeling the pressure of a hot housing market, driven by banking industry business and a boom in new residents. Yet the most compelling markets to look at include Florida, which has become the posterchild for unbridled growth, with Texas and Tennessee-Nashville currently one of the most in-demand markets for high-end homes.
Including all price points, NAR reports that the South accounts for 46% of all home sales.
And while the Sun Belt is certainly a literal hot bed, New York is back. In many cases the prices of condos in the city increase by as much as 20%, and in the suburbs, it is nearly impossible to find reasonably priced, move-in ready homes.
It’s a similar narrative in Chicago, where sales range between 10% and 15%. Internationally, all eyes are on Dubai, which is seeing record activity levels, partly fueled by Russian investors. Even in London, sales in upscale neighborhoods are coming back.
Looking ahead, we see that the next phase of luxury development is being driven by wealthy millennials.
The features they want in their properties – for example, fully wired homes that are suitable for remote work as well as more space, “green” access and a great location – will be major influencers on the industry and significant opportunity sectors. will give way to
The co-primary market will continue to be a mainstay as high-net-worth individuals work from home and seamlessly move between households. And despite the explosive growth in housing, office districts in major metropolises like New York will continue to struggle.
We don’t expect a rise in interest rates — now at 4% — to act as a deterrent to high-net-worth home buyers in the United States, but it will deter aspiring buyers.
As a whole, the biggest threats on the horizon are geopolitical, involving Russia and China.
The affluent in Europe may be thinking of relocating their wealth to safe havens such as the United States. Most foreign buyers of real estate in the US over the years have been affluent consumers from China, Canada, India, the United Kingdom and Mexico.
China has accounted for the biggest drop in foreign investment in New York real estate as the pandemic hit. Therefore, the absence of Chinese money would be far more impressive than the sanctions or withdrawal of Russian buyers in the New York market.
Bearing in mind that US and European sanctions only apply to confiscation of assets of targeted Russian oligarchs, not confiscations. Entirely confiscating the assets of sanctioned Russian oligarchs is difficult until governments have established a paper trail linking the purchases of those assets to illicit money.
Overall, there is demand in the market, but there is no supply. Expectations are high, and the next few months are sure to offer an interesting glimpse into how the industry will continue to adapt to market volatility and disruptions globally.
Mickey Alam Khan is the president of the New York-based Luxury Portfolio InternationalA global network of independent luxury brokerages