High net-worth individuals are increasingly seeking smaller properties for investment. Younger millionaires want properties less likely to be impacted in the decades ahead by extreme weather and climate change.
Well-heeled Americans tend more and more to seek homes in foreign locations, among them Central America, Asia, Mexico and Canada. And with an eye toward growing wealth over the long term, prosperous people are investing in second homes, rental properties and vacation abodes to enhance portfolio diversification.
These are among findings of Coldwell Banker’s recently released 2022 Trend Report, which parses perspectives from the firm’s exclusive Coldwell Banker Global Luxury/ Censuswide survey, as well as insights from the Institute for Luxury Home Marketing, Wealth-X and an array of industry experts. In the report, consumer survey data on more than 2,000 U.S. high-net-worth individuals undergoes in-depth analysis to help pinpoint the trends that will drive the luxe real estate market today and into the future.
Those who have purchased high-end homes in the past half decade have done well. Luxe single-family homes fetch 60% more than they did in 2017. Attached upscale homes have seen their prices soar 41% over the same period. That may be why the aforementioned survey revealed four in five wealthy respondents view real estate as a safe investment, helping put high-end real estate in a strong position for 2023.
Changing times
One of the primary findings of the Coldwell Banker report is that the luxury market “is showing signs of a reset,” according to report authors. Increased interest rates, inflation and uncertainty have reduced demand this year.
As well, the pandemic led high-net-worth buyers, whose purchases had soared in 2020-21, to modify their emphasis
The Trend Report also found most luxury home markets that were analyzed remained sellers’ markets as of late summer 2022. Nonetheless, buyers will increasingly find the trend pointing in their favor, and will enjoy greater negotiating strength, despite continuing to have to battle reduced inventory levels and inflated price tags.
Not satisfied
As they deal with volatility, economic uncertainty and higher interest rates, it’s perhaps not surprising rich buyers have shifted their thoughts on second homes, investment properties and smaller assets in general.
Analyzing sales of single-family homes in 20 U.S. markets from April to August of this year, the report authors found smaller footprints of 2,500 versus 3,500 square feet increasingly in favor. Such configurations sold 18.6% faster than larger single-family dwellings of 4,500 to 5,000 square feet.
Many recent buyers could be looking to buy again soon. Reason? In accordance with news reports of rampant buyers’ regret seen often in 2021, many home buyers expressed unhappiness with the homes they purchased since the start of the pandemic. About one in four who acquired a home in the last 24 months reported dissatisfaction.
Reflecting the earlier insight that prosperous individuals consider real estate a safe investment, the Trend Report found well-off individuals pivoting during this time of uncertainty toward real estate providing psychological, emotional or monetary stability. “They’ll be looking to diversify their real estate portfolios, create long-term generational wealth, make opportunistic buys in traditional luxury centers, or seek properties in locations less affected by climate change and extreme weather,” the authors wrote.
Global search
Finally, the rich are looking internationally for home investments. Reflecting the strong U.S. dollar, an increasingly volatile political climate stateside and rising costs of living, more than 9 in 10 (92 percent) are considering looking in foreign markets for their next residential investment.
Whether buying abroad or at home, affluent buyers seeking to avoid higher mortgage rates will look to cash and creative financing to fund buys.