The state of the luxury real estate market: 2017-2018 and beyond

You've probably seen articles, news features, and social media posts about our red-hot real estate market lately. But rarely do they talk about the luxury market specifically, leaving buyers and sellers of high-end, million dollar, and luxury homes in the dark. So we thought we'd present you the most complete, accurate, and up-to-date data on the luxury real estate market. 

Sales of luxury homes have skyrocketed in 2017, with Q2 sales up 7.5 percent from just one year ago, with the average luxury home selling for $1.79 million across the U.S.

This also marks the first time since 2014 or before (that’s the year they started tracking this specific data) that luxury home sale appreciation has outperformed the appreciation for all home sales.

Basically, the top 5 percent of most expensive homes are selling more robustly than the bottom 95 percent!

According to industry data, which defines a luxury home as one in the top 5 percent of most expensive homes in each city, the luxury home market has experienced a transformative shift, from a lagging and stagnant sector of the housing market to the forefront of activity.

But it seems to be the low-end of the luxury market (so to speak) that’s thriving the most. Sales of homes with a price tag of $1 million or more are up 22.2 percent from last year, while sales of homes priced at or above $5 million are up 19.6 percent.

Despite these price increases, sales volume is down. In fact, the number of listings priced $1 million or higher have dropped 9.4 percent compared to one year ago, and those in the $5 million and up price range have fallen about the same percentage.

That indicates an inventory shortage in the luxury market (mirroring the overall real estate trend), reversing a glut of double-digit inventory growth for five consecutive quarters prior.

Experts point to several factors that have contributed to this state of luxury home sales.

For one, there is a historical precedent that when the stock market is booming, the luxury home market does exceedingly well. But the biggest reason for the luxury market’s renewed vigor may be a change in the mindset of sellers. Analysts point to the theory that owners of million dollar-and-up luxury homes were flat out setting listing prices that the market wouldn’t bear.

Looking to cash in on the greater market’s steady climb, luxury listings were priced higher than buyers were willing to spend. Collectively, that resulted in fewer luxury home sales, greater Days on Market, and general price depreciation. But almost en masse with the start of 2017, sellers have gotten more realistic, reducing prices to levels more attractive to luxury home buyers.

Once luxury listings began to close, that created a supply shortage that further invigorated the market.

The result? The floodgates are open on high-end, million dollar plus, and luxury listings like we haven’t seen since perhaps before the real estate crash and recession.

While luxury listings may be selling like hot cakes, it's still a market dictated by buyers – and what they're willing to pay. Consider that only 1 in 50 luxury homes sold above list price in the Q2 of 2017 (compared to at least 1 in 4 homes that sold for above asking price in the bottom 95 percent).

How about the luxury market in California?

During the January to March first quarter of 2017, 10,562 homes sold for $1 million or more in California. That represents an 11.7 percent year over year increase and also the highest number on record for a first quarter.

During that same time span, 2,523 homes sold for $2 million or more, which is an 11.8 percent increase from the same period last year and also a record.

Irvine, California led the entire nation for year-to-year price appreciation in the luxury real estate market, with an astounding 37.4 percent increase over this time last year, to an average sale price of $3.5 million.

Long Beach, California and nearby Reno, Nevada saw price increases of over 25 percent for luxury homes, too.

The five zip codes with the highest number of million dollar or greater home sales last quarter were 92620 (Irvine); 92130 (San Diego, including Carmel Valley); 95125 (San Jose); 92037 (La Jolla, San Diego); and 92651 (Laguna Beach).

About 78 percent of the $1 million and up home sales were existing (not new) homes; only about 11 percent were condominiums, and 31 percent of all $1 million and up sales were cash purchases.

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Do you have questions about buying or selling a luxury home or would like more information? Contact us any time.

Fool's Gold? These luxury home amenities may not be worth the price tag.

If you’re selling your luxury or high-end home, you may survey your listing and see a lot of amenities that you think are attractive to buyers. But in reality, there is a long and distinct list of features that are trending down with luxury buyers, and may be seen as a negative, no matter what you paid for them. Some of these amenities have simply gone out of style, some are impractical and rarely used, and some just waste valuable money – and space. Since it’s important to always take the temperature of buyers in order to maximize profit on your sale, here are some amenities that currently may be overrated or not pay dividends in luxury homes:

Wine cellars with elaborate tasting room:

In the past couple of decades, there has been a huge uptick in high-end homeowners that wanted to enjoy their love of wine with their own custom wine cellar. Many even had large and elaborate wine tasting rooms. But while people still love wine, most of those tasting rooms were rarely used and inordinately expensive, and that trend is starting to fade.

High-end industrial stove:

Homeowners still want large and luxurious kitchens more than anything else on their wish list, but research shows that a professional or industrial range or stove in the kitchen is overkill. Many of these units cost an average of $10,000, require specialty utilities, and are actually not as fun as they may seem for simple family cooking.

Chef’s kitchen:

The same goes for industrial/chef’s kitchens. They are somewhat paradoxical because luxury buyers still see them as a desirable amenity and they may help you sell your home, but surveys show that people don’t feel the same way once they live in the home and use the kitchen every day, and they are vastly underutilized.  Luxury homeowners still want beautiful kitchens with top-end appliances, but they actually use those intended for the home, not restaurants.

Warming drawer:

Intended to keep food at serving temperature during parties, functions, and several-course dinners, in reality warming drawers are hardly ever used.

Pot filler:

Another restaurant-like feature, some kitchens in luxury homes have a swiveling water spigot right by the stove, so large pots don’t need to be lugged to and from the sink. That’s rarely a problem for normal residential homes, making this a superfluous feature for luxury homes.

Whirlpool tub with jets:

Most people have the fantasy of soaking for hours in complete relaxation in a huge spa tub in their home’s master bath, and it is an attractive selling point to home shoppers, but the reality is that whirlpool tubs with jets require more maintenance and clog with fast-growing germs and bacteria. Conversely, it’s becoming more popular for luxury homes to have ornate walk-in showers with multiple heads, and simple soaking tubs, often in copper or replicating antique models.

Sitting areas in walk-in closets:

Buyers still want spacious walk-in closets that are well lit and organized, but the trend of large sitting areas in the middle of walk-in closets seems to be passé. Instead, luxury homebuyers prefer His and Her walk-in closets.

Hot tub:

Some people use their hot tub religiously, but the vast majority only go near it when it needs cleaning, chemicals and maintenance (or pay someone to do it!) so hot tubs are becoming far less popular.

Huge, ornate swimming pool:

Swimming pools are still a commodity among buyers shopping for a luxury home, but instead of garish and large pools of yesteryear, they are now trending towards simple, rectangular, and modern minimalist.

Cathedral ceiling over family room:

High ceilings are highly valued in luxury homes, but only to a point, and the days of cavernous Cathedral ceilings over family rooms and entryways are numbered.

 Sunroom:

 Sunrooms are only prevalent in luxury homes in cold weather climates, but luxury homeowners in California and other warm places will almost never use them, and could use the square footage to expand their kitchen, family room, or great room.

Outdoor fireplace:

 Outdoor amenities like kitchens, living areas, and grand built-in barbecues saw their stock rise precipitously over the last decades, but some of those amenities are starting to slow. Especially in warmer climates, outdoor fireplaces just aren’t used a lot, or homeowners are opting for smaller/portable and less expensive fire pits.

Wood kitchen cabinets:

Wood finished cabinets are considered extremely outdated, with white, gray, black modern cabinets the newest hot look, some with faux natural patterns and often purposely mismatching with other elements to highlight secondary and tertiary colors.

Traditional metal fixtures:

In luxury homes, silver or nickel door handles, pulls and other hardware are being updated with brass.

Granite counter tops:

In luxury homes, kitchen counters constructed in laminate or tile were unheard of, almost like hanging fuzzy dice on the rearview mirror or a Rolls Royce. Granite countertops were largely standard issue in luxury homes, but now granite is becoming the new tile, and high-end buyers are looking for exciting new countertop materials like quartz, sandstone, concrete, and even composite glass, recycled materials, and natural wood.

Here are some other amenities that are trending down in luxury homes, with the percent drop in popularity this year compared to last:

Outdoor built-in barbecues    - 16%

Hardwood floors   -13%

Plantation shutters   -13%

Covered patios   -11%

Lush landscaping   -9%

Custom cabinets   -9%

Fireplaces   -9%

Double sinks   -8%

Stainless steel appliances   -7%

Pool   -7%

Gated communities   -6%

Center island in kitchen   -6%

Bonus room  -6%

Granite countertops   -5%

Formal dining room   -4%

Formal living room   -4%

Surround sound and tech systems   -4%

Large master suite   -3%

Gourmet kitchen   -3%

Breakfast nook   -3%

Defining luxury; what you should look for in a high-end home

“Give me the luxuries of life and I will willingly do without the necessities.” – Iconic architect Frank Lloyd Wright

These days, the word “luxury” is everywhere. The promise of high-end goods, services, and experiences is no longer reserved for the most affluent of Americans, but now available to just about everyone. We can easily buy luxury brands at the clothing store, drive luxury automobiles like Mercedes Benz and BMW – or similar facsimiles at fractional prices - and even buy a home that is described as ‘luxury.’

In fact, the L word designation is everywhere in advertising, as a recent survey approximated that the word ‘luxury’ comes up in 34% of real estate listing descriptions, up to 42% of appliance and furnishing ads, and 26% of clothing marketing. Googling a query like “How to write real estate descriptions that sell” will yield list after list including the words “luxury”, “distinguished,” “quality”, “exclusive”, etc.

So if we cast aside the watered-down marketing version of ‘luxury,’ what does it really mean? What should it represent?

The Oxford Dictionary defines ‘luxury’ as:

A state of great comfort or elegance, especially when involving great expense;

An inessential, desirable item which is expensive or difficult to obtain;

[In Singular] A pleasure obtained only rarely

When it comes to high-end and top-of-the-market homes, what makes a home ‘luxury?”  Is it merely having an abnormally steep price tag? Cavernous square footage? Fancy amenities that you don’t find in typical homes? All of those things may factor into luxury homes, but the certainly don’t define them – not in an age when high-end materials like vanity sinks and chandeliers are mass produced and offered at rock-bottom discounts at places like Home Depot and Ikea.

Too often, builders and home sellers take advantage of the public’s thirst for status and a superstar lifestyle, purposely including certain features that we associate with luxury, but are little more than a façade or marketing gimmick.

Likewise, adding expensive and frivolous features and fixtures to a mid or even up-market home doesn’t automatically propel it to the rarified air of luxury. Custom swimming pools, wine cellars and electronic self-closing blinds are great, but they are still no substitute for class.

But before we start defining luxury as a certain je ne sais quoi as the French say - that certain indefinable something - there are tangible elements we can pinpoint that most luxury homes enjoy.

1. Neighborhood:

The Locationx3 adage is a real estate cliché, but it’s also never been more true. You just KNOW when you’re in a luxury neighborhood – and so does everyone else. Over the last housing boom of the early 2000s, too many people bought into the dream of living in a luxury home and community by purchasing new(er) construction that had all of the bells and whistles. But research shows that established and mature homes and neighborhoods are actually of a higher building quality and retain their values better, as they have more long-time owners and a well-established exclusivity.

2. Uniqueness

It’s very rare that luxury homes are homogenous with the rest of the homes in the neighborhood. They have unique characteristics, architecture, and design that set them apart and are hard – or impossible- to replicate. Beware of McMansions and “semi-custom” homes that builders slap up and then adorn with fancy facing and certain high-end amenities just to justify a higher price tag, but are basically still cookie cutter. When you are looking into any luxury home, it’s important to research the builder, ask around about their reputation, other projects they’ve completed, and make sure there is a unique “story” to the architect, the home, or the community that sets it apart.

3. The little things

If God is in the details, then take a close look at the small details in a home; if unequivocal quality extends to small touches like the millwork, doors, hardware, cabinets, fixtures, appliances, tile, grout lines, etc. then you know you’re surrounded by luxury. Our eye always gravitates towards signature show pieces like grand chef’s kitchens and dazzling room-size showers, but in a luxury home, the quality of construction and use of top-end materials and amenities won’t be compromised at all down to the smallest detail, even those people rarely see or use.

4. Views

No matter where you are, most truly luxury homes have some sort of great view to set your eyes upon. Whether it be ocean and coastline, hills and valleys, a beautiful garden, park, or fountain, luxury homes that just stare out at the home across the street are almost unheard of. For this reason, authentically luxury homes are usually at higher elevations than their surroundings, or right on the waterfront.

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Tune in for part two of this blog with the rest of the top 10 things to look for in a luxury home.

What luxury homebuyers are looking for, version 20.15.

Surveys show that today's highly affluent homebuyer is looking for some things old and some things new, like technology, green homes, and outdoor living.

As our economy climbed out of the doldrums of recession into today’s landscape of bluer skies and greener pastures, the luxury real estate market not only recovered, but exploded. In fact, sales of the most expensive 1% of homes in the U.S. are up 21.1% over the past year, following up on a 35.7% increase in 2013-14.

And with an estimated 9 million millionaires in the U.S. – many of them self made and enjoying financial bounty for the first time – it’s great news for those current homeowners who are looking to sell their high-end properties. But luxury sellers really need to understand the market and whom they’re selling to in order to maximize their price and attract a bevy of full-price offers.

The following information is based on several different studies, polls, and surveys of luxury homebuyers from a wide array of credible industry leaders.

Understanding the new luxury buyer:

The most profound shift in demographics of the High Net Worth Individual (HNWI) who purchases luxury real estate is that he or she is much younger than we’ve seen traditionally. And these younger HNWI are looking to spend more for the house they love than the typical 55 and older buyers. The younger HNWI spent an average of $2.1 million on their home, almost twice as much as their older counterparts bring the average to $1.6 million for wealth individuals.

In general, all Millenials are the next big wave of homebuyers, though they are still taking a wait-and-see approach so they won’t get burned like the generation before them. It’s reported that 43 percent of younger wealthy consumers are considering purchasing residential property in the next 12 months, compared to only 21 percent of those age 55 and older.

Younger HNWI also want to own two or more residential properties (38 percent of those surveyed) for their personal residences or vacation homes, and also consider looking out of the country for one of those purchases (6 percent).

But one of the most significant changes between younger affluent homebuyers is that they’re not emphasizing square footage over all else. They still enjoy sizable homes, but are willing to sacrifice 1,000 square feet or so if it means they’re in better locations – such as closer to work or cultural attractions in a nearby city – or find the other luxury amenities they’re seeking.

But they have certain expectations, priorities, and desires on their checklist.

What’s "in" this year:

-Some things never change, like the fact that 70 percent of respondents say the location of their home is the most important factor. Homes near the beach or mountains are still popular, with great views and access to leisure activities paramount, but many younger buyers are purchasing expansive property in the country or rural settings, too.

And 54% of luxury buyers still put top priority on a chef’s kitchen when they go looking for their next home.

60 percent of affluent customers want hi-tech and wired homes, fully automated so they can control features like lights, security systems, video cameras and intercoms, climate control, TVs and music, window shades, and door locks from an iPad, remotely via a mobile app, or even with voice activation.

In fact, almost 90 percent of this demographic of luxury homebuyer said they wouldn't even consider living in a home that isn't tech-friendly.

Buyers want green and environmentally friendly homes that are also energy efficient. Two thirds of high end buyers looked for Energy Star-rated windows and doors and insulated glass, and 18 percent of those surveyed reporting that they a home's Green-LED certification was very important.

Open floor plans are more important than ever according to 39 percent of high-end buyers.

Media rooms still are in vogue, with 60 percent of respondents looking for homes that contain one, and 19 percent looking for home theaters.

Home gyms and specialty exercise rooms were an important feature for 50 percent of buyers.

28 percent of luxury homebuyers want swimming pools.

Outdoor kitchens are still a red-hot trend, with nearly half of new luxury buyers on the hunt for homes with that feature. But aside from the typical wet bar (desired by 42 percent of respondents), they’re also looking for warming drawers, sinks, and climate controlled wine, beer, and beverage fridges. 

Buyers also are looking for outdoor fireplaces and firepits in close proximity to the swimming pool and outdoor entertainment area.

New trends in luxury home design:

Mediterranean and French designs are in for luxury homeowners, with Victorian, Italian country, and Classical designs becoming passé.

Instead of granite kitchen counters (don’t do it!), natural stones like sandstone are the new trend. Quartz countertops are the hottest new trend, the crown on any royal kitchen. 

Likewise, natural floor flooring has taken over the more slick and impersonal tile.

Silver and nickel fixtures and hardware are being updated with brass.

In the kitchen wood finished cabinets are considered extremely outdated, with white, gray, black modern cabinets the newest hot look, some with faux natural patterns and often purposely mismatching with other elements to highlight secondary and tertiary colors.

In years past, luxury buyers wanted to enjoy sprawling, elegant bathtubs. But the reality is that we all take far more showers than baths, so the new wealthy buyer is looking for huge, luxurious showers.

It’s now in fashion to show off a well-designed, extravagant powder room for your guests.

Dining rooms have been depersonalized and are more modern and nontraditional, with simple, neutral colors and fixtures.

New additions to the list of luxury home amenities:

Open rooftops are being utilized as spaces for entertainment, exercise, reflection, yoga, and sunset watching, and also to create stunning rooftop gardens and green areas.

The real ultra wealthy buyer isn’t treating the garage like the worst space in the house anymore, but making sure their luxury and specialty automobiles are highlighted with subterranean parking, high-tech automated parking, and even glass ceilings or walls so the autos are on display as you walk through other areas of the house.

It’s not enough to have a wine fridge for luxury buyers; they want dedicated wine cellars with precise climate controls and also dining and tasting areas to host their friends for vineyard-quality events and parties.

Affluent homeowners are equally concerned with leaving a smaller environmental footprint and improving their living space for health and wellness. That’s why super purification systems are one of the biggest new attractions in the luxury market, with filtration systems that include UV lights, humidification systems, and energy-efficient fans run to keep the air purified.