BIZMOLOGY — Sales of high-end homes are picking up again as the economy recovers. Luxury home sales grew by 34 percent between the first quarter of 2012 and the first quarter of 2013, compared to an increase of 5 percent for the market as a whole, according to Redfin. The number of million-dollar sales is also at a six-year high. Chicago, Los Angeles, New York City, San Francisco, and Washington, DC, are among the top markets with the most sales over the $1 million mark.
The high-end housing market typically is not impacted by downturns. However, this time around was different. Homeowners either saw a dramatic decrease in the value of their assets or they stepped back from the market. But as the economy has recovered, extremely tight supply, coupled with low interest rates, and pent-up demand have helped lift prices.
That’s good news for luxury homebuilders such as Toll Brothers and NVR. Toll Brothers’ sales fell 75% between 2006 and 2011, but things are improving. The company has plenty of cash on hand and is ready to use it. It entered the booming New York City market this year and has been busy building high-end homes there. The recovery also is helping the lower end of the market. As a whole, the majority of homebuilders view conditions in the market as good. Homebuilder sentiment is the highest it has been in six years, according to a survey by the National Association of Home Builders.
The improving economy is strengthening homeowners’ balance sheets, and wealth is increasing, a key driver for the luxury home market. In addition to domestic buyers, there also has been an influx of wealthy people from around the world investing in US real estate. Buyers from South America, the Middle East, China, and Russia are flooding in to buy swanky residential real estate in New York and beyond. In Manhattan the number of ultraluxury condos priced at $15 million and above has grown from 33 in 2009 to nearly 50 this year, according to CityRealty.com.
Demand for high-end homes also has led to another trend. Luxury-home flipping, a trend before the housing bust, also is making a return. In flips buyers renovate a property and hope to turn a profit by selling it quickly. Flips of homes priced $1 million or more increased by 35 percent in 2012, compared to the year before, according to RealtyTrac and reported in The Wall Street Journal. Investors looking to capitalize on a hot housing market have turned to high-end fixer-uppers. And while luxury homes can take longer to sell than an average home, the profits can be higher.
Residential construction contractors that specialize in luxury homes will experience an increase in demand as the economic recovery takes hold. Builders will begin constructing larger homes with bigger price tags.