The Luxury Home Market frequently continues to Thrive in a Declining Housing Market
By Mark J. Donovan
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The housing market has been on the decline for the last couple of years now and everything you read suggests it will continue for some time longer. One segment of the housing market, however, that has proved to hold its head up during this housing recession is the luxury home market. America’s wealthiest still seem to have had a penchant for buying new luxury homes during this downturn. So much so, that luxury home and vacation home sale prices have continued to rise at a steep rate during this same time period.
Reports on Luxury Home Sales Some reports are indicating that the wealthiest 10% of the nation’s households may account for nearly half the home sales this year. |
So what’s motivating the nation’s wealthiest households to continue to buy these high end homes, and are the wealthy actually setting themselves up for a major correction in their own private housing market?
| Luxury Homes and Wealth
Not to anyone’s surprise, wealthier households have high incomes and large net assets. As a result, contrary to the average American, the wealthiest households are immune to the other economic pressures that cause many of us to pause sometimes in making large purchases. With incomes greater than $250K per year and net assets in excess of $3 million, wealthy households are resistant to higher mortgage interest rates, inflation, and other household cost increases such as groceries and energy costs. |
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Second, wealthier households in general have larger appetites than the average household. Historically their diet regularly has included big-ticket items such as homes, automobiles, and boats.
| Over the past couple of year’s luxury home and vacation homebuilders have been more than happy to help feed the luxury home housing market segment. They have continued to build high end luxury homes at a supply rate slightly below the demand level, thus enabling a market segment scarcity and a reason for dramatically increasing prices. At some point, however, even the luxury home market will begin to cool. There are hints that this may already be the case.
At some point, even the wealthiest households recognize poor value when they see it. Also, assets that see explosive growth over short periods of time also have the tendency to reverse. When that point actually comes, the luxury home market will probably retrace. Until that point comes, however, luxury homes will probably continue to thrive. |
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