In recent trends, real estate has been booming for the past few years. In the seller’s market, mortgage rates and inventory were reaching new lows. The competition was driving people out of the market even if they were bidding well above market price.
As the world recedes from a pandemic and life moves on, the world is now coming head-to-head with inflation and high prices. Experts forecast that a recession is in our near future. The Federal Reserve’s response? Increase mortgage rates. This isn’t a problem for luxury buyers though, so they should expect to receive some great deals.
With this little increase in mortgage rates, despite past seasons of low ones, the market is changing. Now buyers are up against less competition for properties. Prices are decreasing.
The luxury real estate market is undoubtedly affected by these global economic changes, but it’s good news for luxury buyers. We’ll cover all this below. Scroll for more information.
How do you define Luxury Real Estate?
Luxury real estate is broadly defined. What you classify it as depends on the market. A luxury home in Los Angeles or New York could start at around $4 million or more where the cost of living is much higher. In cities around the U.S. though, in areas like Montana or Wyoming, a luxury home can start at $1 million. Very different barometers for luxury.
A luxury home is also categorized by its gestures. Once again, luxury amenities differ among different tastes and preferences. Some people might consider luxury to mean top-of-the-line interiors, large closets, spas, movie centers, fitness centers, and concierge services. Other people might think a safe neighborhood with up-to-date appliances counts for luxury. Ultra-luxury is defined as $10 million and up.
How Will Luxury Real Estate be Affected by a Recession?
Luxury real estate may be hard to define, but there are a few conditions that are across the board: luxury means higher-priced, top-of-the-line properties. Consider these factors when the economy weakens and the market is left to deal with the aftermath.
More Affordable Rates: With increasing mortgage rates and sellers having to respond by lowering their prices to make up for the shift, changes abound. Buyers who are upsizing are willing to pay a little increase in costs for their next property. Some luxury sellers will have to sell because the recession will impact their businesses and lifestyles, which is great news for buyers–more options to choose from. Home prices have started to drop and will continue to do so, although not by astronomical numbers. So far, luxury homes are seeing these changes the most.
The Global Market is Interested: A recession could very well cause homeowners to sell for less, but there should be a lot of interest coming from across the border. The international market will be showing interest as COVID restrictions loosen and borders open up for real estate again. Foreign investors are returning in droves to make their mark with development properties and homesteads for themselves. Luxury properties in destinations like New York, Miami, and Los Angeles are global favorites.
Luxury in the Modern Era: Luxury looks different now. Sure, location was huge maybe 4 years ago, but now, more remote workers and the emphasis on lifestyle rather than cramped properties have driven people to the suburbs. With low prices and more space, it’s attractive to buyers who aren’t location-dependent. These suburban homes come equipped with tons of amenities as well as room to develop. Still, luxury sellers are finding themselves lowering the prices of their homes as the recession kicks in. According to the market today, the median price of a luxury home is $1.15 million. With a slight change of decrease, this is still 27.5% down from the previous 2021 spring season.
Luxury properties are on the rise again in areas where properties are more affordable than the national average. Florida is one of the top competitors with luxury housing being the predominant feature of listings. Texas is close behind with increases in luxury property sales between 2020 and 2021.
Low prices aren’t the only factors driving buyers out of state or state hopping. Buyers see the lack of income tax and low construction prices in Texas and Florida as huge pluses.
More Inventory, More Opportunity: As mortgage rates declined, properties were scarce and hard to come by. In the next few months, experts see more properties popping up in the market due to new construction and higher rates. The luxury market won’t be affected, though. In fact, they’ll have their pick of luxury homes.
High prices won’t change too much, according to experts. In 2021, when inventory was low, luxury homes were still up for sale with high price tags. Now that inventory is increasing, experts say to expect similar outcomes.
They’re Buying that Vacation Home: Second home purchases were a dream to most people in the past. They believed that a second home would be a money drainer as they’d only use it for a few days out of the year.
With more remote workers and lifestyle changes on the rise, people are more inclined to travel more often without taking vacation time. Second homes are typically luxury properties.
Should I Sell My Luxury Home?
We’re hurdling toward a recession in the United States, so you may be biting your nails thinking if it’s a good time to sell your home. Here’s a pro-cons list to help you make your choice:
Pros of Selling:
- As the economy slows down, home values will drop. If you sell now before it does drop, you can get a better price than if you were to wait.
- Downsizing now is a good option if you’re looking for a smaller, more affordable luxury home.
Cons of Selling:
- If you can afford your property tax and you’ve paid your mortgage, sit back and relax. There may be no need to leave just yet.
- If you’re okay financially, live on that saved money for a while. Selling isn’t urgent.
- If your income could be potentially affected by a recession, hold onto your home.
- If you want the highest value, and you’re not desperate for the money, ride out the recession and wait until it dies down.
Luxury home options are widening more than ever. Where will you be buying your next home? Platinum Luxury Auctions takes the guesswork out of the equation and connects you to ultra-luxury homes with the amenities you’re looking for. Through luxury real estate auctions, you can find your dream luxury home at a mansion auction quickly and efficiently. And with the recession coming, you can likely find a big discount.