As the year 2020 nears its end, we are seeing many changes occur in not only the way we live our lives but also the direction of the economy and the real estate market, in general. According to the U.S. Bureau of Labor Statistics, the unemployment rate has fallen to 7.9% nationally. Alongside this trend is optimism for the real estate market as a whole. The Urban Land Institute remarked in late October that new single-family construction homes will see their highest levels of increase since late 2006. This is obviously great news for buyers and sellers. Leading this recovery is the luxury real estate market. In a report done by Forbes, Realtor.com noted the following:
As more luxury residences hit the market in May compared to April, their higher prices led to the overall housing market’s median price gain of 1.6% last month from a year ago.
In addition to economic optimism for the future is the change that the luxury real estate market has experienced over the years. Here are just four ways this change has occurred:
Experience trumps material possessions
Luxury isn’t necessarily being seen as simply an accumulation of material wealth. It’s being seen as a lifestyle and the ability to have peace of mind over one’s economic life. As New York Designer Andrew Kotchen states, “It’s part of a larger trend in which the affluent are increasingly investing in intangible goods like privacy, lifestyle, and education.” While having a nice home and accessories are certainly part of what is considered a luxury, more importantly, is the experience of living a life of comfort and wealth.
Amenities over space
An interesting development happening in luxury real estate has to do with the increased emphasis on quality over sheer size of the home. As more and more Americans are finding it easier to own items made from luxury brands, luxury homeowners are seeing more the importance of the immaterial. Having that perfect location of your dreams makes just as much difference as owning the right home.
Another way the luxury real estate market has changed is due to the fact that it doesn’t tend to be as affected by changes in the market like ordinary homes are. That being said, it isn’t entirely immune. Skylar Olsen, director of economic research and outreach at Zillow, said the following: “The luxury market often starts slowing down sooner because it doesn’t have the same bubble dynamics [as the rest of the market],” she said. “It also returns to normal faster. And normal is a slower pace, which we forget because the past 10 years have been so crazy. The market normally doesn’t appreciate that fast.”
Unsurprisingly, property tax rates have a massive effect on home buyers, particularly those looking for high-end real estate. If rates are high, those looking to buy a home or invest are more likely to hold back due to the heavy burden those taxes place on them. In late 2017, President Trump signed the Tax Cuts and Jobs Act which made sweeping changes to the prior tax law. Part of this act introduced a $10,000 cap on state and local tax deductions, which previously had no limit. Those who pay a more significant amount in local taxes are more impacted by this law than those who do not.