Luxury Home Market Bullish

Posted: January 8th, 2014 by Brad

Surging stock prices and increased consumer confidence are among the factors propelling sales in the upper-end housing market, says Walter Molony, a spokesman for the National Association of Realtors.

Sales of homes priced at $1 million or above in the U.S. rose 31% to 8,900 units in October 2013 from the same month a year earlier, according to the NAR. The gain was higher in September as sales in that price category climbed nearly 40% to 9,000 units from September 2012.

NAR chief economist Lawrence Yun sees those sales increasing more modestly at 10% to 15% this year over 2013, partly because of slightly higher interest rates and the stock market possibly topping out.

“I’m not so concerned about a negative impact on the $1 million market unless there’s a substantial (stock market) correction,” Yun says.

If the stock market falters and mortgage rates rise, there could be a flattening in the sales of homes that cost $1 million or more but not outright declines, says Keith Gumbinger, vice president of HSH in Riverdale, N.J. He says a fall in stocks often means investors plow money into bonds, helping reduce interest rates and making financing options more attractive.

At the same time, tight mortgage underwriting standards are expected to ease somewhat for jumbo mortgage borrowers. “This should help keep the luxury housing market moving in 2014,” Gumbinger adds.

Molony says some people buy $1 million-plus homes as a diversification strategy to expand their investment portfolio into another asset class like real estate, particularly if they don’t see the bullish stock market moving much higher than from current levels.

Mark Fleming, chief economist at CoreLogic, an Irvine, Calif.-based real estate data and analytics firm, says foreign buyers acquiring very expensive homes or condos in gateway cities like Miami, New York, Los Angeles, and San Francisco could be fueling sales. He says those buyers may be tapping into the U.S. stock market or diversifying their assets from countries they are heavily invested in such as China, Brazil, and other emerging markets with a high concentration of high net worth individuals.

In November 2013 officials of the nonprofit research group Urban Land Institute and global accounting firm PwC released their “Emerging Trends” report for 2014. It’s based on a survey of more than 1,000 real estate industry leaders.

Seattle is among the markets expected to perform well this year thanks to its “high rate of educational attainment” along with the growth of the tech sector, according to a ULI news release, which states these factors make Seattle “a hub for international investment.”

Seattle is seventh for both development and homebuilding as well as the forth best place to invest in U.S. real estate overall.

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