Are we seeing an evolution in the luxury property market, or an interesting rebellion on the part of well-heeled investors against continual conspicuous consumption and “supersizing?”

A current trend toward the purchase of smaller, simpler second-home properties, many of them in out-of-the-way places, by buyers of high-priced properties, is highlighted in a new study by Coldwell-Banker.

Four of five wealthy survey respondents confirm that luxury real estate is still a worthwhile investment, but the focus of such investment buying by current American buyers is not always fixated on larger, resort-style properties. Nor are we seeing high growth trends in high-rise luxury condos in major urban centers. Rather, the luxury property market is “showing signs of a reset,” according to this latest study.

Discerning investors are looking at simpler, “more refined” low-profile properties, some of them in surprising foreign locales that include Asia and Central America, along with Mexico and Canada.

These are not a new crop of potential expats, according to the survey, but a distinctively thoughtful group of investors who see the potential for future growth and profit in some new vacation destinations. Both single-family homes and attached dwellings are being bought up by savvy investors who are weary of volatility, rising interest rates, and the high maintenance costs of large, expensive vacation homes.

They are downsizing and simplifying, while still looking to reap the benefits of long-term appreciation. Values of some high-end properties reached 40-60% since 2016, in some cases. While that type of return is not necessarily expected during the next five or six years, realistic investors believe that the luxury second-home market is still a good investment, especially with creative financing.

Luxury Property Market: A Mixed Breed of Buyers

The authors of the Coldwell-Banker report cite several different reasons for their forecast. They refer to the dissatisfaction reported by some well-to-do buyers who made quick decisions to sell or to buy — and later regretted their choices.

It is interesting to note that about one in four recent luxury buyers expressed dissatisfaction with homes they purchased since the pandemic began. Consequently, they may once again be looking to buy a home that offers a higher sense of “psychological, emotional, or monetary stability,” according to the authors.

Others, they note, will seek to further diversify their investment portfolios, but want some hedge against economic uncertainty and rising costs in this country. For such investors, those foreign markets where the U.S. dollar is still relatively strong are extremely tempting. More than 90% of high-end buyers report that they will look at opportunities in emerging foreign markets.

Another group of affluent buyers is expected to renew their commitment to the creation of “long-term generational wealth,” or seek new opportunities in traditional luxury centers, and unique properties in “locations less affected by climate change and extreme weather.”

Finally, the mid-size market — 2,500 to 3,500 square feet — appears to be a compromise between starter home investment and the upper-level luxury market. Mid-year 2022 records confirm that mid-size homes sold 18.6% faster than homes of 4,500 to 5,000 feet.

Luxury Property Market: Working with Buyers and Sellers

The post pandemic real estate market was still classified as a sellers’ market as of late summer 2022, but most reports look forward to a more favorable buying climate, despite pockets of still-inflated prices and reduced inventory. As we look ahead to the new year, we all continue to monitor the economic reports. Right now, that’s all we can do.

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