Lew Sichelman
The luxury housing market ain’t what it used to be, in more ways than one.
Luxury used to be defined as housing that cost $1 million or more, but that milestone was passed a long time ago. It also used to be the playground of the older and wealthy, but now, relatively young buyers are gobbling up luxury places.
The wealthy are not nearly as sensitive to price as the rest of us. To them, a few grand here and there is peanuts, while a hundred extra bucks might be enough to sabotage the average buyer.
That’s why the luxury sector has held up well compared to the rest of the housing market. Redfin puts it this way: “Ultra-wealthy Americans … have more money to pay high housing costs, and they have the freedom to make big purchases even in uncertain times.”
“The number of cities where a typical starter home is worth $1 million or more has [more than] tripled since before the pandemic, rising from 80 in February 2020 to a record 242 today,” reads a June study from Zillow. Most of those spots are in California, but New York and New Jersey are showing the fastest growth.
Why High-End Is Hot
Nationally, the median luxury home price is $1.37 million, according to Redfin. In fact, there are now just five major metros where the typical luxury house costs less than $1 million.
One reason the high-end sector is doing so well is that owners of said properties are reluctant to sell, even while demand is increasing.
High-end buyers are more active because they’re less sensitive to the affordability pressures and financial instability facing many Americans today. Unlike the rest of us, they are not deterred by 6.5 percent mortgage rates, and they are not thinking twice about the Iran war, economic uncertainty or the upcoming elections.
Simply put, they have the money and they are not afraid to spend it.
Sellers, on the other hand, are somewhat more restrained. While they can see the appeal of cashing out of their manses, most are locked into low mortgage rates, and they face hefty capital gains taxes if and when they do sell.
In other words, it’s Economics 101: Strong demand with limited supply drives housing prices higher.
No wonder, then, that a record 25.2 million adults under 35 lived with their parents last year, according to research from Realtor.com. That’s 33 percent of all young adults, just below the all-time high of 33.6 percent.
Non-Luxury Boomerang Kids
It’s a cost issue, not a jobs issue (or at least not solely jobs): Seven in 10 of the adults aged 25 to 34 who live at home are employed.
The median listing price for a home remains 34 percent above pre-pandemic levels, meaning that the math for independent living just doesn’t work for these young people.
My son’s two adult sons haven’t left the nest yet, and my own nest has been restocked of late by my college-grad granddaughter, who has been unable to find work in her field.
Realtor.com found the trend “particularly visible” during life milestones: “By age 22, a point when university graduates historically moved into the rental market, nearly half (49.3 percent) remained at home, up from 46.1 percent before the pandemic.”
And the situation “intensifies” as the youngsters age. By age 24, 35.2 percent have yet to launch. When they reach the 25-29 age bracket, roughly 1 in 5 still lives at home. In the 30-34 age bracket, the share drops to 1 in 8 – which is still nearly double the 2000 rate.
“At every stage,” researchers found, “more adults are living with their parents than a generation ago.”
Millennial Luxe Buyers Growing Fast
At the same time, Millennials are the fastest-growing segment of the elite realty market, according to a majority of Sotheby’s International Realty’s agents polled for a recently released study. Those between the ages of 30 and 45 are showing an increased interest in houses at $5 million and up.
“It’s incredible to see how many buyers in their 30s and 40s are purchasing properties in the $7 million to $25 million range,” one agent noted in the report.
How do they do it? In part, it’s thanks to their rich mothers and fathers, who benefit from a rising tax-free lifetime gift cap.
“Parents see giving their kids $2 million now as a gift is like earning $4 million because it’s tax-free,” said Sotheby’s President Philip White. “The wealth transfer is happening now, and giving younger homebuyers more capital to make big purchases.”
Indeed, the intergenerational transfer of wealth is occurring sooner and in larger amounts than originally thought, the report noted. The company expects Millennials to be the biggest beneficiaries from the approximately $124 trillion that will be passed down over the coming decades.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.
