Despite a rollercoaster of current events all year, the luxury real estate market experienced positive growth during the month of July.
In fact, home sales in the $500,000 and above range represented 19.4% of existing home sales, while million-dollar sales represented 3.7% of existing home sales nationally.
So what’s contributing to this positive trend? How long will it last? And why didn’t we see growth like this during the last economic crisis?
Though there’s something to be said for delayed closings that were postponed at the beginning of quarantine, the significant increase in luxury real estate sales during July is a trend worth noting.
That’s why we spoke with Tami Simms, Expert Trainer at the Institute, and real estate professional at The Simms Team at Coastal Properties Group International, to see what she had to say about these incredible numbers.
More Time At Home Is Making the Affluent Rethink Their Primary Residence
In addition to delayed closings, Tami reminds us to consider those who were already thinking about relocating before quarantine started. Now that they’re not traveling as much, those aspects they don’t love about their home are becoming clearer and harder to ignore after months of being face to face with them.
“People are choosing to prioritize the quality of the life they have in their home in a different way. You have people who, all of a sudden, one or more people are working from home, plus now you have children who are home. So it seems logical it would influence purchasing up for larger homes,” she says.
She continues to explain that, “People are choosing homes that have larger outdoor spaces, and more amenities, which also happen to be there when the price point goes up. So it’s like the perfect storm in a positive way, and that is one explanation for the increase, because it kind of defies the lack of inventory we’re seeing.”
Tami adds that these are the types of features to highlight almost exclusively in your luxury real estate listings. While it should be handled with the appropriate degree of subtlety and sophistication expected at this level of real estate, it should be clear to a potential buyer that your listing would be a comfortable place to be if stricter lockdown procedures were to take place again.
Though focusing on lifestyle versus “need” has always been the golden rule of luxury home marketing, it’s never been more important than now.
Second Homes Are Becoming More Popular With Lockdown Uncertainties
Now that most folks are aware that lockdown restrictions can become more or less strict in an instant, some are choosing to go where restrictions are generally less strict, or where they can enjoy more space at home or outside.
We’re seeing successful clients in more urban areas, like New York City, relocate to places like The Hamptons, Florida, or even Hawaii to escape their lack of space. In addition to wanting more square footage to work with, Tami also says these clients don’t want to stay in luxury condos where they can’t freely use shared amenities like pools, hot tubs, or gyms due to COVID-19 restrictions.
So while last year it seemed luxury condos would become an unstoppable trend and that larger estates were a thing of the past, these circumstances are making smaller residences a less popular choice.
Buyers Are Still Taking Advantage of Low Interest Rates
With interest rates still significantly low, even affluent clients who may not technically need financing are taking advantage of this perk to purchase up, or purchase a second home residence.
“Whether they need to or not, it makes the most fiscal sense for buyers to borrow right now,” Tami explains.
“With that said, lending requirements are much more stringent now. Now, you really have to prove value, so even though we’re seeing this increase, buyers aren’t overpaying.”
Unlike the 2008 Financial Crisis, This Crisis Has Less to Do With Real Estate
Tami reminds us that the 2008 crash, unlike COVID-19’s effects, was actually fueled by a real estate crash.
Tami clarifies, “We used to joke about the fact that leading up to the 2008 crisis, if you could fog a mirror you could get a loan for whatever you wanted to pay for a house. So now, we have checks and balances on the financing for the individuals, and even stronger checks and balances in the appraisal world.”
She also mentions buyers are wary about paying too much right now, unlike what we saw leading up to 2008 where financing was more of a crutch for those stretching their budgets.
Plus, seeing this much recovery in just four months since the crisis began is a far cry from the years of recovery it took to bounce back from 2008’s decline.
Tami describes this crisis as more of a “pause”.
When asked how long she thinks we could see this increase continue, she pulls out her Magic 8 Ball, shakes it a few times, and reads off the vague answer with a laugh to demonstrate the point that really, no one knows.
However, she does add, “It’s going to be a function of inventory… but people are definitely making decisions based on what it was like to be shut in.”
How the Institute Can Help Luxury Professionals Leverage This Trend While It Lasts
Besides recommending luxury real estate professionals keep in contact with their sphere in any way possible, Tami also recommends staying closely connected with Institute learning materials.
“If the luxury segment is performing at such a significant rate compared to the lower price points, now is better than ever to be focused on increasing your price point as a professional. And in order to compete, you’ve got to know your stuff.”
She says the Institute’s training helps you understand amenities, construction quality in the upper tier, and features you’ll find in a luxury real estate price point you’re not experienced with at a lower price point.
Plus, the trainings will also help you learn how to talk to your clients in an educated way about which of those luxury features are realistically available to them – which they’re more concerned with now than ever before.
Tami also recommends spending time going through the learning library available to all Members.
“The Institute learning library for Members has been tremendously filled with really timely webinars and drill-down topics. For example, we have the webinars based specifically on what to do now about things like staging and smart home and home automation,” she says.
She ends saying, “Take this time to prepare for the future, because it is never going to go back to what it was before. I’ve been a trainer for 14 years now, and I have seen cycles of things. And there are some things that are always true– like effective communication, knowing what amenities are available– some of these principles are timeless. But the idea that you have to pay attention to what’s coming next is really, really important, because what was true yesterday may not be true tomorrow.”
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