1. Small homes are becoming more luxuriousSmaller homes are becoming more popular among luxury home buyers, with small luxury houses selling 19% faster than larger ones in 2022. Research also suggests that some affluent buyers may not need or want extra space anymore as they return to work, school and city life. Smaller homes may also be cheaper and easier to buy with cash. Downsizing into a smaller primary residence or second home may become the new normal as housing prices continue to increase.
Co-owned second homes
2. Luxury houses are in a seller's marketThe housing market as a whole has seen impressive growth over the last couple of years, but the luxury real estate market still managed to surpass the lower tiers.In May 2023, the luxury real estate market saw a sales ratio of 37.01% — anything above 20.5% is considered a seller's market.One explanation for this growth is that wealthy Americans are less affected by volatile job markets. Being able to work remotely without interruptions to their income has put them in a prime position to take advantage of lower mortgage rates.
3. The luxury real estate market becomes more globalizedDue to a strong U.S. dollar, international real estate purchases are expected to increase in 2023. In fact, 92% of U.S.-based respondents to a Coldwell Banker survey said they would consider buying a home abroad.Meanwhile, foreign investors are taking an interest in states like Texas, California and Florida. China was the biggest investor, purchasing over $6 billion worth of American real estate in 2022 alone. India, Canada and Mexico are also increasing their portfolio of luxury American real estate.
4. Large market luxury home median prices are increasingMetropolises like Los Angeles and Austin are experiencing higher median prices for their luxury listings in 2023. In fact, over 24% of Austin homes are being listed at $1 million or higher, and 11.6% of homes in California boast a price tag of over $5 million.The increase in luxury home prices is redefining what the luxury market will look like in desirable locations across the United States. For example, the small luxury market of East Honolulu may lack the volume of buyers that big cities have, but over 70% of its listings are above the million-dollar mark.
5. Buyers are paying for luxury homes in cashAll-cash sales comprised 26% of transactions in November 2022, up from 24% a year earlier, according to National Association of Realtors data. Higher interest rates may have made cash more attractive for luxury real estate buyers, who are also using margin loans, stock portfolio loans and private bank loans to fund their purchases. Since luxury real estate is a highly desirable and competitive market where buyers often face multiple offers and bidding wars, paying in cash can give them an edge over other buyers who need to finance their purchase with a mortgage. This, coupled with recent banking shifts and increasing credit card transaction fees, means cash transactions are only expected to become more common in the coming months.
6. Rising interest rates are causing fear in the luxury real estate marketThe current state of the economy is causing some buyers to hold off on their luxury home prices, with 35% of Coldwell Banker survey respondents hesitant to purchase a home due to rising interest rates. Over 27% of respondents also noted that the possibility of a recession is pausing their luxury home purchase decision. Stock market fluctuation, inflation and higher home prices are additional areas of concern for buyers in 2023.
7. Luxury second home ownership is on the riseMany people have avoided buying a second home, fearing they wouldn’t get enough use from it. With limited personal days off work, the second home would be vacant most of the year and turn into just another expense. Now that more people aren’t tied to one specific location for work, they feel they can get the most out of their money with a second home. In fact, 29.6% of survey Coldwell Banker survey respondents expect demand for luxury homes to increase from 2023 to 2024. Vacation towns in the mountains and along the coasts are turning into workcation destinations. The luxury home market is also seeing gains in co-ownership. Some buyers want a second home without sacrificing the amenities included in a high-end property but aren’t necessarily able to afford it. Becoming a co-owner can make this sort of purchase more achievable, especially since most second home owners only use their properties occasionally. And with a fully managed co-ownership model like Pacaso, buyers can own a second home and create memories with their families — all for a fraction of the cost. Families purchase 1/8 to 1/2 ownership of a turnkey luxury home, and Pacaso takes care of all the maintenance, furnishings and property management.
8. Investors are adding to their portfolioIn 2022, there was a 10% increase in the number of affluent individuals owning three or more luxury homes. By owning properties in different locations, markets and segments, investors can potentially reduce their risk and increase their returns. Luxury real estate has the tendency to be less volatile and more resilient than other types of real estate, especially during economic downturns. Investors can also create a cash flow opportunity from these properties by turning them into luxury vacation rentals.High-end real estate often appreciates faster and higher than average properties, due to their scarcity, exclusivity and desirability. Investors can benefit from capital gains and equity growth over time.The luxury real estate market is no stranger to change, and 2023 has a lot in store for high-end home seekers. Whether you're searching for a new primary or secondary residence, our insights can help you find the luxury home of your dreams. For more important market updates and luxury home listings, join our newsletter below.
Luxury real estate market FAQ
What is luxury real estate?
Luxury real estate is a term that varies depending on location and market conditions. Generally, it refers to properties that are significantly above the average price range and quality of other homes in the area.
How do you break into the luxury real estate market?
One way to break into the luxury home market is to search for real estate in a geographic location that meets your budget. For example, luxury real estate in Idaho is cheaper than luxury real estate in California.
Is it difficult to get into luxury real estate?
Getting into luxury real estate can be challenging, but not impossible. To succeed you need to have a solid understanding of market trends, the needs and preferences of affluent buyers and sellers, and the legal and financial aspects of high-end transactions.