The demand for trophy homes costing at least $100 million is growing around the world as the number of billionaires increases. And sales of what the super-wealthy might consider “affordable” luxury—homes costing $1 million or more—increased at the end of 2014, even as the total housing market waned.
“That’s no surprise,” Nela Richardson of Redfin wrote of the real estate firm’s year-end study on the rise of ritzy residences, “given that the luxury housing market was the first to recover after the crisis and has been going strong ever since.”
Behind the boom
In the U.S., many buyers of high-end homes have benefited from a healthy stock market and low interest rates, which put them in the position to invest in million-dollar properties.
According to Redfin, the U.S. cities that are home to more luxury dwellings than any others are in California: San Francisco, Los Angeles, San Jose and San Diego. Close behind are Chicago and Houston.
Worldwide, the U.S. boasts three of the five most-expensive homes sold last year: An estate in East Hampton, NY, went for $174 million. The next most-expensive property was a villa in France, which sold for $146 million. And the No. 3 spot was back in the U.S., where a buyer paid $120 million for a Greenwich, CT, estate. Fourth on the list was a $104 million Hong Kong home; and fifth was a New York penthouse, which sold for $100.5 million.
Christie’s International Real Estate said there were five such sales worldwide, according to Bloomberg.
Homebuilders have gotten the message: Luxury homes are selling.
The “average” luxury home is expensive, but not in the Christie’s stratosphere. Coldwell Banker, for example, calls $750,000 a luxury home price point. Others consider $650,000 pricey enough for the title. New homes with up-to-date, high-end finishes, appliances and extras, according to Nevada Business, are seen as more luxurious than older abodes with dated features, even if the existing homes’ selling prices top $1 million.
Still, the lust for luxury isn’t all good news for the U.S. economy.
“An economy like New York City requires a vaster diversity of activity,” Richard Anderson, president of the New York Building Congress, said last week of a study by his organization that showed the luxury market was largely responsible for a 26% jump in construction spending last year throughout the city.
And while the spurt of high-cost construction has been good for the building trades, Anderson said new housing “needs to be job-generating, not just construction job-generating. It needs to be targeted toward an infrastructure that will support and sustain an economy.”
Yet U.S. Commerce Department numbers show that Americans are super-sizing their homes again.
Median home sizes hit a record high of 2,415 square feet in 2014, and more homes sold for upward of $400,000 than for less than $200,000, according to the department. The Wall Street Journal reported that 4.8% of homes sold last year for $750,000 or more.
Builders are responding by building bigger, more expensive houses.
Their reasoning: Few young adults are buying homes, so the demand for lower-cost, entry-level starter homes has dropped off. At the same time, homeowners who are ready to “move up” have higher incomes, more money in the bank, and better credit scores, and are lining up to buy roomy houses with fine amenities.
Still, economists at the National Association of Home Builders and elsewhere predict the trend could be short-lived.
Millennials, who have delayed marriage and children and who have struggled to save money for down payments, are expected to hit the market with some force as soon as this summer as banks relax credit requirements and accept smaller down payments, and as young adults land more secure, better-paying jobs.
The Journal reported that several homebuilders are gradually shrinking the size of their homes under construction in anticipation of the influx of first-time buyers later this year.