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The New Luxury Home Market
There’s a nine-month supply of inventory, with more buyers than sellers
With “luxury home” generally defined as a home valued at $500,000 or
more, a high percentage of Valley homes would have fallen into that
category only a few years ago. Today, however, with the average Valley
single-family residence valued at $160,000, “luxury home” encompasses a
more select market.
Luxury properties span the Valley in
gated and non-gated communities, and include horse properties and golf
properties. Number of active days on the market increases with listing
price, averaging 133 days for houses in the $500,000 to $600,000 range
and 373 days for houses listed at more than $3 million. The average
listing in the luxury category is $1.35 million, and Lein notes
appreciation is not markedly different from a year ago. Compared to
non-luxury properties of $100,000 to $200,000 that appreciated 28
percent per square foot in the past 18 months, luxury home prices
increased $3 per square foot.
A little more than 2,400 homes now on the market in the Greater
Phoenix area qualify as luxury homes. Selling at an average of 250 per
month, this is a 9.4-months’ supply; a year ago, there was an
approximately 12.5-month supply. So the glut of homes on the market is
definitely receding, and W. P. Carey School of Business reported in October that there were more buyers than sellers in today’s housing market overall.
Foreclosed properties overall is no longer a dominant issue.
While America’s housing market is finally starting to really recover
from the Great Recession, some areas of the country are fighting back
faster than others. New research from the W. P. Carey School of Business
at Arizona State University indicates one reason: Different states have
dramatically different mortgage laws, and some — like Arizona — make it
easier to push through tough times.
“The laws across states use different legal theories as the basis for
mortgages, and they balance the rights of creditors and borrowers very
differently,” explains Assistant Professor of Real Estate Andra Ghent of
the W. P. Carey School of Business. “The variations started early in
America’s history, and they’re not really based on economic reasons, but
they’re still having a major influence on what’s happening now with the
housing market.” Key, she says, is quick resolution of the situation.
“For example, if a state requires a longer period before foreclosures
can happen, then that generally means the homes deteriorate more as the
borrowers realize they’re going to have to leave and stop taking care of
the property. This is bad for the neighbors and the property values.”
Arizona is one of the states in which the damage happened relatively
quickly, and there’s no longer a big backlog of foreclosures to go
through the process. Center for Real Estate Theory and Practice at the
W. P. Carey School of Business data shows Phoenix-area home prices have
been rising dramatically since last fall.
The market is seeing “some push-back from second-home owners who are
concerned about maintaining their second-home lifestyle” in light of
possible tax changes, Lein says. Other reasons for selling, he says,
fall into the usual categories: death, divorce, relocation and kids
growing up. And Lein observes, “There’s a pent-up demand for divorce.
People couldn’t afford to get a divorce” when they were underwater on
their mortgage.
There is some speculative purchasing, but that is primarily for the
foreclosed properties. Other buyers of luxury homes are “move-up
individuals,” says Lein, pointing out that even if unemployment is in
the high teens, there’s another 80 percent who “are working and
susceptible to moving up.” And then there are the multi-nationals who
are buying their luxury homes here. Canadians make up a large part of
this market; joining them are individuals from Pacific Rim countries,
and new to the mix are Chinese. According to Lein, purchases by Chinese
are largely trophy properties on the West Coast, but “Paradise Valley
has had some sale to what’s reported to be Chinese, who are so new [to
Arizona] that, in many cases, they’ve never seen the property” in
person.
Lenders today have more to offer this market. Lein notes that two to
three years ago, “there was literally nothing available.” But now, he
says, “Every week, I’m being approached with new and improved financing
programs for luxury-home buyers.”
