Luxury Insider – Real Estate Market Big Picture

Intero Luxury Insider logoBy Alain Pinel
General Manager of Intero Prestigio international
Intero Real Estate Services, Inc.

luxury insider - trendsThe real estate market pulse is a bit slippery and ephemeral nowadays. You know what you’ve got to deal with today, but tomorrow is another day and another set of new conditions and challenges. If it’s good, we’ll take it. If it’s not, we have to take it anyway.

This year, which is melting away fast, as we speak, business has been pretty good. We’ll gladly accept another year like 2014. But can we count on a similar year? We’ll see. We will know more and make some prognostics as we get closer to January 1st. For the time being, let’s try to understand where we stand now and what appraisal can be made of 2014 in the residential real estate arena.

For this exercise, allow me to paint the picture of the market with a big brush. The problem with this task is that we have way too many states in the country and each one has a multitude of micro-markets evolving at different speeds and sometimes going in different directions. So, we’ll stick here to the general traits that marked the year and compare the stats & overall performance to that which was achieved in 2013:

  • Number of listings: Down – Curiously, more sellers chose to play the waiting game this year, whether because of the risk of not finding a satisfactory replacement home in a tight inventory market, or because of economic uncertainty, or because they still expect the market to deliver more dollars for their homes in the months ahead.
  • Number of sales: Down – No real surprise here: we can only sell what’s listed and, as we just said in the above paragraph, the number of listings, which was already alarming last year in the most desirable markets and the so-called high-end markets, actually shrunk further.
  • Median price: Up – Nothing too surprising here either. Simple supply & demand phenomenon. That’s what you get when the economy is growing/accelerating, lots of new & well-paid jobs are being created, much of the pent-up demand from the pre-recession days is still waiting at the gate… And there is not much for all these potential buyers to choose from in the way of homes.
  • Price appreciation: Up – Double-digit for most markets during the first half of the year, with enough momentum to carry on for the entire year. Note, however, that the percentage has gone down substantially in the second half. In many markets across the US, the appreciation is now “only” half of what it was through the first 6 months. Sign of the times?
  • Affordability: Down – Salaries & savings have not kept pace with inflationary prices. Today, the affordability index is down to around 30% in most hot markets. Less than a third of would-be-buyers are in a financial position to live the American Dream.
  • Luxury market: Up – Price is no issue at the top end of the market. More & more buyers are writing offers on multi-million dollar properties, some at the $100M level. The recession has not affected this segment of the buying demand near as much as others, and money has bought more and better homes during and after the crisis.
  • Foreign buyers: Up & Down – Over the last 3 years, at least, they have been the engine that drove prices up at the high-end. It could be said that, in the top tier of the price ladder, foreign buyers coming from China, India, Europe, the Middle-East and our neighbors from both the North & South, have kept that market alive & robust. Good thing because, relatively speaking, the qualified domestic demand actually shrunk a bit. Interesting to note that, as good as the foreign demand has been, it diminished in the second half. Stay tuned.
  • Cash buyers: Down – At least in relation to the previous year. Still very high though, around 30% of all sales. At the high-end, it’s more like 75%. The higher the price, the higher the percentage, up to the ceiling of 100%.
  • Multiple offers: Down – Lots of buyers are getting sick & tired of bidding wars. Only one wins (and pays big money for it) and the others move together to the next one with a sad face and less motivated to give it another try. As a result, fewer homes are selling over the asking price. It is especially true at the high-end where prices are soft.
  • Homeownership for young adults: Down – The 18 to 34 year-olds have a hard time qualifying. Renting or living with parents are fashionable options. Millennials are delaying “adulthood” (as a recent study from the California Association of Realtors describes it) and putting home ownership on the back burner.
  • Distressed properties: Down – Big time. Quasi inexistent (5 to 10%) in hot markets. After years of dominating the transactions, short sales, foreclosures and the likes, have been replaced by a huge & growing wave of equity sales. Good sign.
  • Real estate investors: Down – Low inventory and price hike have sidelined most of those small investors who benefited from the recession years and their cortege of distressed sales. Even large institutional investors have been playing low-key this year.
  • Mortgage money: Up – Banks & other financial institutions have reloaded on loanable dollars. They are now anxious to make them available to home buyers, and at rates which are still at bottom level. Good news for those borrowing candidates who were nervous when the Fed shut down its bond-buying/easy money faucet.

That, in a nutshell, represents the real estate picture and market pulse a few weeks before we close this year for good. The market velocity is still going fairly strong but it is slowing. Seasonal slowdown? Sure, for the most part, but we’ll need to wait a while longer to draw more conclusions and start analyzing the trends. Today, we are in, yet, another transition market. Let’s see what comes next.

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