Over the past few years, luxury home sales have represented a bright spot in an otherwise weak housing market. Luxury home sales, or sales totaling at least $1 million, have increased every quarter since 2012 and significantly outpaced normal home sales. In the past, this activity mainly originated from international buyers. However, the past year has revealed a market shift for these luxury homes leaning in favor of domestic buyers.
The popping of the American housing bubble created a solid investment opportunity for international buyers. Housing prices fell across the country, while interest rates stayed at historic lows. Additionally, the Fed was pushing down rates with its QE program.
As a result, many international buyers bought American properties as an investment, not as a primary residence. Many of these purchases were in the luxury home market and were all cash sales, as wealthy foreign investors wanted a place to move their money.
The American economy is much stronger now than it was in early 2012. As a result, more Americans have money to spend on new homes. Simultaneously, the Fed has also ended its QE program to lower mortgage rates.
On a global scale, however, the World economy is in worse shape than before: Russia is struggling with low oil prices, the Euro has weakened against the dollar and China's economic boom is decelerating. As a result, American luxury homes are no longer deemed as a good investment. There are also fewer international investors interested.
These economic changes haven't hurt luxury home sales — they've just shifted the market. Sales of luxury homes have increased in the third quarter of 2014. However, all-cash sales fell from 48 percent to 22 percent of the market. This is a sign that there are fewer investors and more homeowners, as investors tend to buy with cash while homeowners take out mortgages.
Sales are also moving to different locations. International investors once targeted areas with large price drops, such as Miami, Orlando and Las Vegas. Now that prices are up, activity is decreasing in these areas. At the same time, areas where average prices tend to be higher, like Los Angeles, San Francisco, Washington D.C. and Boston, are seeing more domestic activity in luxury home sales. Keep in mind that even average-sized homes in these markets can often be valued in excess of $1 million.
This trend is expected to continue as long as the American economy continues to recover, so lenders should shift their marketing from international investors and promote services for domestic homeowners in the luxury market. They may also want to focus on cities where luxury sales are growing, while simultaneously reducing marketing in the cities where growth is slowing down.
A trusted information provider like Equifax can help lenders find these new kinds of prospects for luxury homes. Equifax has the most up-to-date consumer information, such as trended credit data, which can help lenders find prospects that are likely to buy a luxury home. Also, Equifax property data can help lenders analyze existing and potential geographical markets for economic strength.
Every economic shift has winners and losers. What could be bad for international investors in the luxury home market may be beneficial for domestic buyers. By keeping on top of this shift, lenders can continue their strong activity in this sector.