LUXURY AT ITS FINEST
One constant throughout the difficult market of 2023 has been the continued strong performance of higher-end homes despite higher prices and interest rates. While the median U.S. home sale price rose 3% in July from the same time a year ago, the biggest jump since last November, the median sale price for luxury homes has risen faster, up 4.6% year over year to $1.2 million in the second quarter.
There are many reasons for this increase in sales price at the higher end of the market. One is simple math reflecting the lingering effect of the torrid pandemic market of 2020-2022, which saw home prices skyrocket as record-low mortgage rates and remote work drove Americans to buy homes. Today, nearly one in ten homes nationally is worth $1 million or more, close to the all-time-high level of June 2022, according to a new report from Redfin. The share of homes valued at $1 million+ has more than doubled from pre-pandemic levels, when just over 4% of all homes were worth that much in June 2019.
With twice as many homes above $1 million in the market, more homeowners are in position to buy other properties at that level and produce upward pressure on prices. More of these homeowners stockpiled cash during the pandemic as well, or secured low-interest lines of credit, both of which they can now leverage to be more competitive as buyers in a high interest rate/low inventory environment.
SUSTAINED SALES AND HIGHER PRICES
In our market on Cape Ann, we are seeing other reasons for sustained sales and high prices in the upper end of the market. At the Amanda Armstrong Group, we see more sellers of higher end properties put their homes on the market with no plans to buy a similar property in this area. They are selling to move closer to family, often out of state, or to realize a long-desired plan for retirement by relocating to another region offering amenities not to be found in New England. In this context, it is somewhat easier to wait and achieve a higher target price. The buyers of their homes often fit a similar profile. We see a growing number of buyers of homes above $1M, and especially of homes above $3M, moving to the area to be closer to family members or to finally realize a retirement goal of owning a second home. And with the pandemic having altered the workplace to enable many people to work at least partially remotely, many of these are making such purchases even before they have retired. Not surprisingly, many of these buyers work in industries that prospered during the pandemic—healthcare, biotech, pharmaceuticals—and find our region’s proximity to Boston highly appealing.
We are also seeing a slice of buyers of such homes coming from places where climate or social changes may have reduced the appeal that drew them there originally—such as Florida, Arizona, and California—who are drawn to Cape Ann for its rare combination of incredible physical beauty, seaside setting, vibrant culture and arts, and its authentic character and compelling maritime history. Many have sold homes in more expensive markets and find the Cape Ann market to be relatively affordable.
ARE WE IMMUNE?
So, is this segment of the market immune to the market forces that are slowing other segments of the housing market, and to the law of nature that says everything that goes up must eventually go down? Obviously the answer to both questions is no, but it may take a recession more severe than the one we are projected to experience this winter, if one happens at all, to slow the momentum in the higher end home market being driven by the factors outlined above. Until then, we can expect what was once considered a rarefied segment of the market to be an unlikely engine for real estate activity in our region.
SAVE THE DATE:
Insurance 360 | 360 Degrees of Insurance
September 20, 2023 | 5pm-7pm | AAG Office, Magnolia
Your Guide to the Sometimes Complex Market of Insurance
A conversation with Jeremiah Lewis, President, Sullivan Insurance Agency
Contact the Amanda Armstrong Group at 978.879.6322 or at email@example.com to discuss any of Compass’ premier services or if you are thinking of buying or selling on the North Shore.
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LUXURY AT ITS FINEST