Luxury Insights

Luxury sales in major Canadian cities - First Quarter 2013 (compared to previous years)

What’s happening in the Canadian upper-tier market?  RE/MAX has released their Upper-Tier market report for the first quarter of 2013.  It shows that high-end home sales are down in many major Canadian markets, as compared to first quarter of 2012.  The price points identified in the charts are the starting prices for what RE/MAX defines as luxury for each market.

As you can see, Alberta cites like Calgary and Edmonton are the hottest markets.  Energy industry growth is fueling high home demand in the province.  British Columbia’s markets, by contrast, are going through major downward adjustment after a boom which was driven by a big influx of international buyers and uncertainty created by pending provincial elections.

“Luxury sales were slow out of the gate in 2013, but momentum is clearly starting to build,” says Gurinder Sandhu, Executive Vice President and Regional Director, RE/MAX Ontario-Atlantic Canada.  “A growing number of purchasers are moving off the sidelines and into the market—even in centres that reported a dip in first-quarter sales.  All the indicators are pointing to a traditional spring market poised for considerable growth.”

Sandu also indicated that the top-end represented a greater percentage of overall residential sales in many markets in Q1 2013 in comparison to Q1 2012.  In some cases, the upper-end is still outperforming the overall market in terms of residential real estate activity.  Affluent purchasers remain committed to homeownership, with many taking advantage of historically attractive interest rates, and in some instances, lower housing values, to make their moves.  Equity gains have also factored into the equation, given substantial increases in housing values over the past decade.

Read the complete report.

They’re back… Sunken living rooms are on the rise

Those who remember the “conversation pit” living areas of decades ago may be surprised that sunken indoor and outdoor rooms are on U.S. and Canadian designers’ lists of hot new housing trends – along with tented rooms...

and chevron patterened floors.

For a look at these trends and more, check out this website.  And may we add, some “trends” catch on, others may not. 

Canadian market slowing but prospects better for 2014

Recently released statistics from the Canadian Real Estate Association show that April 2013 home sales activity in Canada slipped 3.1 per cent, compared to April of last year.  The number of Real Buyers (closed transactions) was down for the month in 60 per cent of local markets.  This compares to a sales decline of more than 15 per cent in March, with 90 per cent of local markets dropping year-over-year.

Changes in mortgage rules one factor in decline

Gregory Clump, CREA’s Chief Economist, said, “Since changes to mortgage rules made in 2012 took effect, national sales have been running nine to ten per cent below levels posted in the first half of 2012 but they’ve been remarkably steady. April activity was on par with where it stood last August, and month-to-month changes since then have held to within a range of plus or minus two per cent.”

Prices inch up nationally

Despite fewer sales in the high price markets of metro Vancouver and greater Toronto, the national average price still clicked up 1.3 per cent in April, compared to same time last year.

The number of newly listed homes is also edging down, resulting in a sales- to-new-listings ratio of 50.4 per cent in April.  Total inventory levels are at 6.6 months, close to a balanced market. 

Sales down this year, up next year

CREA forecasts for 2013 indicate national sales activity will reach 441,500 units in 2013.  This represents a 2.9 per cent decline from 454,573 sales in 2012, and is five per cent below the 10-year average.

Since there is no such thing as a national housing market, provincial differences are expected,  Alberta and Manitoba are the only provinces where sales are expected to rise in 2013, although modestly. The percentage decline in sales in Saskatchewan, Ontario, Quebec, and Nova Scotia is forecast to exceed the national result this year.  The percentage decline in sales in British Columbia, New Brunswick, and Newfoundland and Labrador is forecast to be less than the national result. The smaller annual decline being forecast for British Columbia and New Brunswick reflects a weakening trend in these provinces during the first half of 2012 that was not apparent elsewhere.

In 2014, CREA forecasts that national activity will rebound by 4.5 per cent to 461,200 units, a slow but steady improvement in activity. This would still leave national sales about one per cent below their 10-year-average, with activity not expected to return to levels recorded in the first half of 2012 at any point in the forecast horizon.

Where the very rich cluster

Where are the largest concentrations of very wealthy in the U.S.?
Here are the top 10 cities based on the count of Ultra High Net Worth (UHNW) Individuals as reported in the “World Ultra Wealth Report.”

U.S. City Rankings
Based on Number of Ultra High Net Worth Individuals*
1. New York City    7535
2. San Francisco    4580
3. Los Angeles    4525
4. Chicago    2630
5. Washington D.C.    2395
6. Houston    2295
7. Dallas    2075
8. Atlanta    950
9. Seattle    950
10. Boston    915
10 Philadelphia    915

Source: World Ultra Wealth Report
UHNW Individuals have at least $30 million in investable assets -- defined as money invested or available for investment, typically measured by asset values, but not including a primary residence, consumables (such as wine), or “investments of passion” (such as art or jewelry).

Up in the Air?

There has been discussion lately (and some enthusiasm) about the use of drones to photograph and video real estate properties for sale. According to Wikipedia, a drone is an unmanned aerial vehicle (UAV) without a human pilot on board. Its flight is controlled either autonomously by computers in the vehicle, or under the remote control of a pilot on the ground or in another vehicle. As recently as January of 2012, drones were said to violate Federal Aviation Administration (FAA) rules and were banned from U.S. public airspace. However, the FAA was instructed by Congress late last year to open the nation's airspace to routine commercial drone use and the FAA is in charge of issuing permits for drones that operate at 400 feet or higher.

The FAA says drones that operate below 400 feet are subject to the same rules that govern model aircraft. Those rules essentially say the drones cannot be flown near populated areas, must stay within eyesight of the user, and cannot be used for commercial purposes; at least until the rules are finalized, which is not expected until 2015. With real estate agents and journalists using drones, it appears those rules are being put to the test. An FAA spokesman said the agency "has investigated operations that appear to be commercial in nature,” and at least one drone photography business has been shut down.

Outside the U.S., some photographers are legally making a living by utilizing drones for real-estate photography. Accredited Australian drone photographer Saul Goodwin is considered a pioneer in real estate drone photography. He uses an I-Phone app to setup interval shots on his drone.

While aerial photography can be quite pricey, drone photography is considerably less expensive. The drones themselves are extremely versatile, and can go out in almost any weather. Though high-flying drone photography may set Realtors’ marketing apart from their competition, it remains to be seen what guidelines for their use will be authorized by the FAA and if this practice will “upset” affluent consumers and communities, who feel that drones create privacy issues.

The FAA is still currently debating drone regulations and privacy concerns. How do you think drones may impact the real estate market if allowed for commercial use?

California’s High-end Home Buyers Create Luxury Boom

Consistent with other recent signs of recovery in the luxury market, the number of California homes which sold for a million dollars or more last year rose to its highest level since 2007. A total of 26,993 homes changed hands for $1 million-plus last year, up 26.9 percent from 21,267 in 2011. It was the most sold since 42,502 homes crossed the million-dollar threshold in 2007.  At the same time, the number of transactions for more than $5 million rose to an all-time high.  Statistics are from San Diego based DataQuick, a real estate reporting company. 

Last year's 26.9 percent year-over-year sales gain in the million dollar and above market outpaced the state's residential market as a whole. Sales across all price ranges totaled 447,573, up 8.2 percent from 413,479 in 2011. Clearly, the luxury market is leading other price points in terms of sales.

See the chart below which breaks out high end sales by price.  Note that we prefer calling closed sales “Real Buyers” and we define a real buyer as someone who not only contracted to buy the home, they showed up at closing and walked away owning it.

The Dos and Don'ts of Kitchen Design

Even if you don’t remember harvest gold appliances and green shag carpet, you know that kitchen design trends come and go. While kitchen layouts have certainly begun to change –as we discussed in our previous blog entitled “Kitchen Sprawl”—designers have also begun pinpointing what they consider to be the “dos and don’ts” of creating a perfect kitchen.

House Beautiful readers have identified eight kitchen design trends they would like to see disappear, in addition to explaining what should be done instead.

Are your buyers hoping they won’t find the features House Beautiful readers identified as less than desirable in the homes you are showing?  What do you think?

Trulia economist predicts “Healthiest Residential Markets” for 2013

Chief Economist Jed Kolko of Trulia has created the list of what he believes will be this year’s ten healthiest U.S. residential markets.

According to The Wall Street Journal’s MarketWatch, Kolko focused on the “solid fundamentals” or predictive factors which he believes will cause these residential markets to outperform others.

Kolko’s predictive factors and information sources:

• Strong job growth – Bureau of Labor Statistics
• Low vacancy rates – U.S. Postal Service
• Low foreclosure inventory – RealtryTrac

 The 10 Healthiest Residential Markets for 2013

1. Houston, Texas – strong job growth
2. San Francisco, California – strong job growth
3. Bethesda, Rockville, Frederick, Maryland – very low foreclosure inventory
4. San Antonio, Texas – low vacancy rates, relatively stable home prices during the bubble /mild price declines
5. Austin, Texas – strong job growth
6. Seattle, Washington – strong job growth and low vacancy rates
7. Omaha, Nebraska – relatively stable home prices with “mild’ price declines during the bubble
8. Peabody, Massachusetts (North Boston Suburb) – low vacancy rates and strong job growth in nearby Boston
9. Ft Worth, Texas – mild price declines during the housing bubble
10. Louisville, Kentucky – mild price declines during the  housing bubble

What do you think?  Are these the markets most likely to be top performers?  Are there others you think will be peak performers or market laggards?  Give us your comment.

Top Destinations for U.S. Retirees

Wondering where your retiring clients might be considering moving for their golden years? Here are some places you might want to know more about and where you might want to start developing referral relationships.

A recent article in the Financial Post reports that Ecuador has been ranked -- for the fifth consecutive year -- as the top foreign retirement destination for U.S. retirees. Low cost of living, friendly culture, lovely climate and closeness to the U.S. are among the reasons cited for Ecuador beating out other countries including Mexico, Costa Rica and Panama. A close second, Panama was cited for having many retiree discounts, and making it easier for expats to acquire a visa.

Many factors contributed to the compiling of this list, including property prices, retirement infrastructure, ease of integration into the country, cost of living, as well as benefits to retirees. Spanish speaking countries like Mexico, Costa Rica, Uruguay and Spain ranked high on the list, with only two Asian countries being named; Malaysia, breaking into the top 5 for its cheap rent and tropical climate and Thailand making the top 10 due to its affordable outdoor lifestyle. A few EU nations could also be found among the 22 countries listed, including Ireland, France, Portugal and Italy. The Philippines, New Zealand and France rounded out the list, and were said to have the highest cost of living, but an attractive ease of integration.

It seems likely that many U.S. consumers may focus on finding their retirement properties in one or more of these countries. So whether your clients are looking to retire in a tropical climate, or want the most bang for their retirement buck, focusing on cultivating real estate relationships in these areas seems smart. Read more…

Crystal Ball View of 2013…Looks Much Like 2012.

Wondering what the new year will bring to the luxury housing market?  We are guessing it will look a lot like last year.

Five years ago the recession sent the U.S. housing market into a tailspin. Happily, 2012 appears to have been a turnaround year for the residential market; however, the recovery can still retreat into a false start due to financial and political issues -- including the uncertainty created by deficit issues, an expected increase in the capital gains tax, and the Dodd Frank Act (which sets new mortgage standards as of January).

The luxury home segment has led the recovery, beginning in 2011 in many markets.  One major driver of luxury market activity has been the increase in the number of wealthy U.S. households.  The start of the recession saw the number of High Net Worth Individuals (HNWI) -- those with a million or more in investible assets, not including their personal residence -- drop dramatically. Consequently, the luxury home market cratered. However, this affluent group recovered their wealth quickly and many focused on residential real estate as a desirable asset.  For some, a second or third home was both a lifestyle purchase and a portfolio play.  Record low interest rates and the perception of bargain home prices were also purchase motivators for the affluent.

As a result, the luxury market in many areas enjoyed increased activity in 2011 and in 2012.  For instance, California is often considered a bell weather state and it was one of the hardest hit geographic areas in the downturn. According to DataQuick, in the second quarter of 2012, million dollar home sales in California were up 10.3% above the same quarter the previous year.  This was the highest level of million dollar sales since the third quarter of 2007.  One of the strongest luxury market recoveries occurred in Miami where, according to Knight Frank stats, the luxury home segment saw a jaw-dropping 35% price increase over a two year period ending in September, along with declining inventory levels.

While U.S. luxury purchasers are active, a major driver of the luxury market is the wealthy international buyer.  Foreign demand for U.S. homes has grown, as has the diversity of the foreign buyer prospects. The factors which influenced foreign luxury home demand in 2012, are still at the top of the list as influencers for 2013.   

• Wealth creation.  As wealth rises, especially in emerging countries, the number of prospects shopping for prime residential properties grows.

• The flight to safe haven.   The U.S. is considered a stable, safe place to invest.  For those who wish to move assets out of their home countries, the U.S. has special appeal.  For some, physical safety for themselves and their families is also a consideration.
• Currency fluxuation.  Although home prices slipped when we went into recession, the home price decline is aggravated when some currency exchange rates are considered.  In short, the bargain prices brought by the recession were discounted further for some foreign buyers.
• The desire to own prime property and enjoy a desirable lifestyle.  Lifestyle is a powerful motivator.  Trophy homes in desirable areas have great appeal and supply is limited.

Where foreign buyers come from depends upon the market.  Brazilians, Venezuelans, and Argentinians continue to flock to Miami along with Germans and Italians.  Australians and Brazilians are boosting the Aspen market.  Russians, the British and French are joining Wall Streeters in the New York Hamptons. Watch for Chinese buyers at the very, very top of the U.S. luxury market, especially in New York.  Eastern Europeans are also popping up as prospects in some U.S. markets.  Across all price points, Canadians still rank as the number one foreign buyers, followed by the Chinese.

All in all, without a fall off the U.S. debt cliff, a tidal wave from the Euro crisis, or an unpredictable black swan event, the luxury home market should continue to be healthy (and perhaps even grow) in 2013. If you are wondering just how big this market segment is, the $500,000 and above market represents 10% of sales and the $1 million and above market is about 1.6% of sales.  Luxury is a small, but desirable market niche and this is a good time to fine tune your luxury strategy or target the luxury segment if you aren’t already.