By: Camilla McLaughlin

Photo courtesy

Taking the temperature of luxury real estate at year-end was not an easy task, with post-election uncertainty still palpable and an interest-rate hike in motion. What does it mean for upscale consumers? A new state of mind is what Diane Ramirez, CEO and co-chairman of Halstead Property, sees emerging in the marketplace.

Cautiously optimistic … price conscious … limited inventory … a glut of properties … sell now … hang tight. These are all phrases industry leaders used to characterize the upscale market as 2016 transitioned into 2017, and nothing better illustrated the contradictory dynamics of luxury real estate at year-end.

High-end properties led the recovery, but this year the luxury story is, in part, one of increasing days on market and slower price appreciation in some but not all locations. “Some markets are seeing a slowdown in the high-end and some aren’t. It’s important to keep this in perspective,” says Philip White, president and chief executive officer, Sotheby’s International Realty Affiliates.

“Markets that are seeing a slowdown are places that came back hard and fast from the recession,” says Stephanie Anton, executive vice president, Luxury Portfolio International.

“In most markets, we’re seeing price increases stabilizing, and 2017 will be a great time to buy, says Lesli Akers, president of Keller Williams Luxury Homes International. “Basically, we’ve moved out of a ‘crazy’ sellers’ market into a ‘normal’ sellers’ market. We anticipate the luxury market will be more balanced in 2017.”

No Market Shift Overall

By the end of December, the most recent data confirmed what many anticipated: 2016 would go on record as an exceptional year. “Over the past 11 months, the majority of markets have seen home prices return to their pre-recession levels, reaffirming that 2016 has been the best year for the housing market since the recession,” said Dave Liniger, CEO and co-founder of RE/MAX.

Even though rising mortgage rates and a limited inventory in affordable price brackets are expected to temper sales, the outlook is positive, and at year-end, favorable indicators continued to accumulate. October sales — up 5.9 percent year-over-year — charted the highest pace since February 2007. Expectations are 2016 sales will tally 5.42 million, the best year since 2006, when 6.47 million properties sold. September prices, according to the Case Schiller Home Price Index, surpassed the July 2006 peak. With just over a four-month supply, the inventory is well under the 6-month benchmark that signals a balance between buyers and sellers. Looking ahead, prices are projected to rise 5 percent this year, followed by a 4-percent increase in 2017, when existing sales are expected to track at 5.52 million.

According to the RE/MAX National Housing Report, more homes in all price brackets sold in November than in any November in the last eight years, with home sales 19.1 percent greater than a year ago.

“The housing market has proved more resilient than many feared this time last year,” observes Akers. “At the lower end of the price scale, there’s very limited inventory. Anything under, say $300,000, is flying off the shelf.”

Most importantly, there are no signs pointing to a market shift anytime soon. In fact, almost three quarters of industry experts surveyed by Zillow do not expect the pendulum to swing back in favor of buyers until well beyond 2017. The largest number, 42 percent, see it taking place in 2018 while a few even look past 2020.

Compared to recent years, interest from international buyers softened in 2016. “The worldwide economic slowdown, like everything else, is relative. Granted, we all have to be mindful of  global challenges with the potential to slow the foreign investment in high-end property, but these types of challenges have yet to negatively affect the majority of the affluent,” says Gino Blefari, CEO of HSF Affiliates LLC.

Luxury is Local

On the other hand, a range of variables from a surge of new construction to the value of the dollar, to new requirements for transaction disclosures, are affecting sales in certain high-end locales, while a lack of properties puts a damper on transactions in others. The end result is a diverse and stratified luxury market.

“It’s a tale of many markets and, also, markets within markets. Depending on the market, certain price points are more active than others. We also see the disparity in demand for new development and construction,” shares Charlie Young, president & CEO, Coldwell Banker Real Estate LLC.

“Real estate is a local market business, so there are always going to be outliers and exceptions to overall trends. It’s all about supply and demand,” shares Akers.

“The West has been strong continually for the last several years. The East Coast had a little pre- and post-election slump or slowdown, but that seems to be improving now with the stock market’s reacting favorably to the election,” says John Brian Losh, publisher of

Uber-luxury properties in New York, Miami and platinum neighborhoods on L.A.’s Westside capture the most attention from both traditional and social media. It’s tempting to consider that heady realm as indicative of luxury overall, but those price points and locations represent a slim slice of the market. It’s for good reason economists are prone to use sui generis to characterize this rarified sphere.

“When we look at the ultra-high-end $15 million-plus price range, it’s a very small percentage of overall U.S. home sales — we have to consider things such as affordability, behavioral trends and more,” says White.

Recently, John Burns, CEO of John Burns Real Estate Consulting weighed in to counter reports of a national luxury slowdown. According to Burns, luxury home sales continue to increase and sales of homes priced above $600,000 in the last 12 months exceed the prior 12 months by 10 percent. Data from NAR also shows homes priced above $750,000 accounting for 4.55 percent of overall sales in the first 10 months of 2016, compared to 4.491 percent in 2015.

If anything, the recovery itself has been a story of many markets. “We’ve not had a single year where you can say every sector was growing or performing well. The luxury market did better in the early years, but in the past year appears to be one of the weaker parts of the market,” says Jonathan Smoke, chief economist for, who sees real estate overall as a “big dynamic ecosystem.”

Ask agents and experts where luxury sales are still hot and they tick off a range of places as diverse as Denver, Los Angeles, San Francisco, Portland, Seattle, even parts of Florida. And the risk in these markets is not a lack of buyers, but rather not enough homes to sell. Of the 35 largest U.S. metros, Boston has had the largest decline in inventory year over year, according to Zillow. 

Paul Boomsma, president of Luxury Portfolio International and COO of Leading RE, also sees diversification of the high end as a positive indication that the luxury sphere might be settling into what could be considered normal. “When you’re in a normal market, it’s not the same everywhere.”

Uncertainty surrounding the election also put some real estate plans on the backburner, although reports from agents at the end of December suggest this might be a temporary adjustment.

Inventory is Down, Except…

The supply of homes for sale priced above $1 million fell 2.4 percent in the third quarter from a year prior, while those priced above $5 million increased 17.2 percent, according to Redfin.

“Inventory across the board in the broader market has been — and I believe will continue to be — a concern, with the exception of sections overbuilding in new construction. In the upper price brackets, it’s shown to be an issue as well. On the other side of that sword, we have areas where our $7 million-plus and certain $20 million-plus buyers have many to choose from, so that is a sign of few active buyers and not so much an inventory issue,” explains Craig Hogan, vice president for luxury, Coldwell Banker Real Estate LLC. 

In New York City, where the number of for-sale properties grew in 2016 and prices stabilized and even softened, those who know the market say the pendulum still favors sellers. “It’s not a buyers’ market, but buyers do have more options now,” says Eric Serras, principal broker at Ideal Properties Group.

In Manhattan, the number of properties for sale priced at $30 million-and-up is unprecedented. “We’ve never had a supply at that level and with that level of superior finishes. There is nothing that isn’t superb. Usually you have a jewel or two of those, but we have a number of jewels now. It obviously creates a bit of an oversupply,” observed Ramirez.   

Hope and Change?

According to Redfin, luxury home prices rose 1.4 percent in the third quarter of 2016 compared to last year, to an average of $1.6 million. Redfin’s analysis tracks home sales in more than 1,000 cities across the country and defines a home as luxury if it is among the top 5 percent most expensive homes sold in the city in each quarter.

Stock market volatility early in the year followed by global economic uncertainty related to the Chinese economy and Brexit may have dampened price growth, but it didn’t keep luxury clientele from buying. Sales of homes priced above $1 million increased 6.8 percent in the third quarter from a year prior. Sales of homes priced above $5 million were mostly flat, inching up a mere 0.4 percent.

Instead of a slowdown, Anne Miller, director of Brand Marketing for Re/Max, describes the current status for luxury as more of a pause as a result of a watch- and-wait mode post-election.  “Right now, everyone is positive about 2017.” Also, she says, it’s important to remember this is a discretionary purchase. 

All of this underscores how much real estate has become a passion for the affluent. “We know on average the top 1 percent own at least four houses in different locations,” Anton says. “They are focused on real estate, but the post-recession affluent consumer is more price sensitive, more sophisticated, more focused on research and more involved in the process. They are becoming greater partners with their agents.”

Many believe a change is in the offing for luxury. “We are seeing increased activity since the election and believe this represents a pent-up demand in the upper price points,” says White.

Even in New York, a “new state of mind” is replacing what Ramirez calls “a lackluster desire to move forward.” Too many options immobilized potential buyers, who hesitated because a better option might be available the next day. This lack of urgency even trickled down to lower price points. Now, Ramirez says, “People are realizing, ‘this is the market, this is the new normal. So, let me look for what is perfect for me and move forward, there is nothing else to wait for.’”

“What we see is today’s most affluent buyers consider themselves to be prudent. Nobody is spending money frivolously, but they’re spending money. What you have to remember is what may be frivolous to one person is an absolute requirement to someone else, so the person who is making that purchase, it’s not a frivolity to them because then they’re making a prudent purchase,” explains Boomsma.

No matter what happens there is a good chance the love affair between the affluent and real estate will continue. “They are always looking for the next best thing. They want to invest their money wisely, and if they can get in sooner and find something they absolutely love, the better it is,” says Miller.

Wild Cards

Year-end finds us at a unique vantage point, where everything from foreign policy to taxes to the economy seems to be on a mythic tipping point. For luxury, several potential wildcards could be at play. Consider: “tax cuts that might benefit high-income or higher-net-worth individuals that could provide the incentive, the means and the interest to invest in real estate,” says Smoke. “Real estate is a long-term inflation hedge, and so if indeed those funds are more available because of tax cuts and/or from financial market performance…. And inflation is more expected in the future, there could be more individuals pursuing specific investment and second homes because of the ability to access an inflation hedge.”

A potential negative, according to Smoke, would be changes to the mortgage interest deduction. “Imposing a cap is going to impact luxury more than other parts of the market, and, in particular, one part of the cap could be no longer allowing an interest deduction on second homes or vacation homes,” he says. While not all the upper-tier relies on mortgages, changes would still affect a swath of this demographic, such as older baby boomers who comprise a substantial segment of this market.

Still, Boomsma says he finds it interesting that in post-election concerns, the economy is not at the forefront. “It’s certainly not in the perception right now that the economy is the great concern, so from this perspective when it comes to luxury real estate, that’s probably a good thing,” he says.