Luxury Real Estate Trends for 2008, Part 1

2008,Looking Forward: Key Market Trends for Luxury Housing

1. The number of wealthy will grow and the rich will be richer than ever.

There’s no end in sight for the luxury housing market thanks to demand driven by demographics. Short of a serious recession or terrible terrorist event, you can expect the very top of the luxury home market to keep humming along in 2008 in most U.S. markets.

There will be continued softening at the entry levels of the upper-tier where many aspirational affluents stretched to buy homes they really couldn’t afford. But, activity should remain healthy at the top of the market. Nevertheless, expect some communities (Asheville, Charlotte, Manhattan, Austin) to outperform others (Miami, San Diego, Tampa, Detroit).

Key points: Target the luxury market segment, but recognize that real estate is a local business and you must analyze your market by price range to know where the hottest opportunities are. In many markets the market potential may be best at opposite ends of the spectrum—luxury and foreclosures.

2. Expect more cautious spending by the very rich and more focus on value.

The financial difficulties created by the securitization of mortgage loans (and not just the sub-prime ones) will be felt at all levels. The CDOs (collateralized debt obligations), SIVs (structured investment vehicles) and other “creative” forms of packaged mortgage loans have been bought by institutional buyers from municipalities to major banks, pension funds, etc. We are starting to see the results of mortgage defaults and the resulting losses surfacing around the world. Financial institutions are in the headlines today with reports of big write offs. Morgan Stanley’s $9.4 billion write-down at the end of December is one example. The news in 2008 will start to focus on the municipalities, pension funds and others who bought the new-fangled mortgage derivatives and are just now discovering the extent of their losses.

These headlines will create a more cautious investor, hit some wealthy directly in their pocketbooks, cause more turmoil in the banking/financial markets, somewhat moderate the luxury buying frenzy we’ve had over the last several years, and focus activity at the very top of the market. The wealthy will pay more attention to the long term investment potential of property than in the past several years.

We’ll still have big spenders—for instance, Russian billionaires will still complete for the longest yacht, most elaborate home, etc.—but, expect a bit more caution in the homebuying marketplace. Lifestyle desires and unique property features will still be the biggest influences on a luxury home purchase; however, buyers will also look more carefully for perceived value and safety of investment.

Key points: Recognize that even though a luxury home is an emotional purchase, you may also be called upon to explain why it is a smart long term investment as well as a great lifestyle choice for the buyer. Expect caution on the part of buyers, but remember the unique characteristics of the home and the lifestyle desires of buyers are still the big reasons for them to buy a residence.

© 2008 The Institute for Luxury Home Marketing, posted with permission from the Institute of Luxury Home Marketing

***Look for Part 2 of Luxury Real Estate Trends in the coming week.

Leave a Comment