There is not one design, style or size that embodies a
luxury home. It could be a sprawling 15,000-square-foot French manor set
on several rolling acres, or it could be a 4,000-square-foot
contemporary home nestled into the side of a mountain. Although it's
difficult to quantify exactly what luxury means, most buyers think they
know it when they see it.
Across the United States,
sales of luxury homes have been hitting records. The number of
California homes selling for $2 million or more, for example, reached an
all-time high in 2013, as the state rebounded from the foreclosure
crisis. The U.S. is not the only place seeing bitg sales of luxury
homes. Vancouver, Canada's priciest real estate market, saw a record 36%
increase in 2013 over the previous year on sales of homes priced over
$2 million.
Prices for luxury real estate have
also seen significant increases over the last couple of years. According
to Knight Frank's Prime Global Cities Index, which tracks luxury real
estate in 30 metropolitan markets around the world, the hottest luxury
market now is Jakarta, which saw price increases of nearly 38% at the
end of 2013 over the previous year. Knight Frank defines luxury real
estate as homes that were sold in the top five percentile in terms of
value. Other double-digit price increases in the last quarter of 2013
over the same quarter 2012 include Dublin (17.5%), Beijing (17.1%),
Dubai (17%), Los Angeles (14%), Tel Aviv (12.7%), Bangkok (12.3%), San
Francisco (10.4%) and New York (10.4%).
Why the Growth?
It
may seem incongruous that luxury markets are heating up, given that
much of the world is still recovering from the 2008 financial crisis.
Like the financial markets, the real estate market operates under the
law of supply and demand.
And by nature, there are a limited number of luxury homes for sale at
any given time in a particular market. That limited inventory alone can
help drive up prices as multiple buyers bid on a single luxury property.
Strong Job Market
In
many metropolitan markets, such as Denver, low unemployment rates
coupled with well-paying jobs have fueled the luxury real estate market.
Chris Mygatt, president of Coldwell Banker Residential Brokerage in
Colorado, said, "We have never seen this kind of frenzy in luxury home
sales before. The strongest single market segment for 2013 was clearly
the luxury home market. If you include the sales of properties priced at
over $500,000 - the top 10% of the market - we saw an increase of 44%
year over year."
International Buyers
In
the U.S., international buyers represent a growing percentage of the
real estate market, including the luxury market. From April 2012 - March
2013, international transactions were at $68.2 billion, which made up
more than 6% of total U.S. existing home sales (in dollars), and more
than 4% of transactions, according to the National Association of Realtors (NAR); 2013 Profile of International Buyers.
Florida, California, Texas and Arizona were the leading destinations
during that period, with the majority of international buyers coming
from Canada, China, India, Mexico and the U.K. These numbers represent a
small decrease from 2012's $82.5 billion in sales to international
buyers, but NAR believes this is related to the slow growth in some
major European economies and that the issue "should dissipate over
time."
The publication also cites that international buyers
typically purchase higher-priced properties compared to domestic
clients: international buyers spent an average of $354,000 versus
$228,000 for domestic purchases. Due in part to the tight U.S. credit
standards facing foreign buyers, the majority of international purchases
are all-cash deals (63%). This can put other buyers who need financing
at a disadvantage, since all-cash deals tend to move faster through the
process.
U.S. Relatively Inexpensive
The
U.S. is home to only one of the top 10 most expensive cities
in the world, making the U.S. a relatively inexpensive and attractive
destination, both in terms of cost of living and housing. According to
Forbes Magazine, the top 10 most expensive cities in the world (as of
March 2013) are:
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Hong Kong, China
-
Tokyo, Japan
-
London, UK
-
Paris, France
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Moscow, Russia
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New York, NY
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Shanghai, China
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Singapore
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Mumbai, India
-
Sydney, Australia
Buying a Luxury Home
According to the
2013 Profile of Home Buyers and Sellers
published by the National Association of Realtors, nine out of 10
buyers used the Internet at some point when looking for a home, and 43%
of recent buyers first found the home they purchased online.
While
the vast majority of homebuyers rely on the Internet at some point
during their home searches, luxury homebuyers can be at a disadvantage
when it comes to finding properties online. Many high-end properties
aren't listed on MLS
or search engines. And, in order to protect their privacy, many sellers
avoid putting information and photos of the property on the internet.
Find a Qualified Real Estate Agent
If you are in the market for a luxury home, a qualified real estate agent
who knows the luxury market may be your best bet for finding properties
that are for sale but that are not necessarily easy to find because of
privacy concerns. An agent familiar with the luxury market may have
inside information about listings before they hit the open market. And,
an experienced agent will be able to help you determine the market value
of a luxury property. Most residential real estate is valued using
comparables - similar properties in the area that have recently sold.
Valuing luxury properties can be a challenge since often there are no
similar properties in the area.
Financing
The
loan process for luxury homes typically takes longer than for smaller
mortgages. Even if your financials are in good order, it may take 45 to
60 days to secure a loan. Since it can take extra time, and because the
seller of a luxury home is often interested in showing only to qualified
buyers, many real estate agents recommend having your mortgage broker,
loan officer or personal banker obtain your financing approval early on
in the process.
Due Diligence
As
with any real estate purchase, it is important to take the time to
properly inspect a luxury home prior to purchase. In many cases, luxury
homes are larger and have amenities that may require specialized home
inspectors, such as:
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Pools and spas
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Fountains and ponds
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Lawn irrigation systems
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Exterior fireplaces
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Automatic screen and awning systems
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Central vacuum systems
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Heated floors/driveways
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Sophisticated security/surveillance systems
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Landscape lighting
The Bottom Line
The
luxury home market has experienced record growth in the last several
years. Much of the growth in the U.S. and Canada is the result of
international buyers who want to take advantage of favorable exchange
rates, are relocating for work, are using real estate as an investment,
or who may be affluent parents purchasing a home or condo for their
children who attend North American universities.
