Prices of Luxury Homes on the Decline
The heyday of luxury home prices increasing at par with middle class homes seems to be over, according to latest research from Zillow as reported on Forbes.com. The median home value of middle class market homes had increased by 5 percent for 2015 while home values of the luxury property market had increased only by 3.3 percent in the same period.
The study differentiated homes in the top 10 percent of ZIP codes in each metropolitan city is deemed as the 'luxury market'. Comparatively, the bottom 10 percent of ZIP Codes in the same metropolitan city is deemed as the 'entry-level-market."
The slowdown may be due to a number of factors. These include foreign buyers being hesitant to put in their money as investments in luxury homes as well as the slower growth in home values.
The price decline of luxury homes was also confirmed in another report, this time from Housing Wire, quoting data released by real estate brokerage firm Redfin. According to the Redfin data, this was the first time luxury home prices decreased since 2012.
The report stated that prices had declined by as much as 1.1 percent annually for the first three months of the year. On the other hand, prices in the lowest 5 percent of the market had been increasing annually over the same period by as much as 4.7 percent.
According to Redfin Chief Economist Nela Richardson, "Luxury buyers are out of step with the rest of the market because their wealth is at stake. Instead of cheering rock-bottom mortgage rates, luxury buyers recoiled from high-end spending in the face of volatile asset prices. Luxury demand, especially for vacation and investment properties, has been more than fragile this year, causing prices to slump."
Redfin further reported that the inventory for homes priced at $1 million increased by 3.3 percent from 2015 while homes priced above $5 million had inventory increase by 13.2 percent.