Luxury Housing Heads Into Robust Year, With Remote Work, Vaccine Driving Trends
December 23, 2020
Source: Mansion Global
Demand for single-family homes, private outdoor space and enough room to work remotely will drive robust luxury home sales in 2021—benefiting some of the world’s top luxury markets more than others.
There is now ample data from around the world to support what began as mere speculation nine months ago: That the global Covid-19 pandemic would spur an unprecedented shift in lifestyle choices and housing needs, marked by an overwhelming preference for larger houses, more amenities and less population density.
“We expect the luxury market to perform well,” said George Ratiu, senior economist at realtor.com. With economic recovery underway, a vaccine boosting confidence and a strong stock market, a so-called “wealth effect” will drive the “upper end of the consumer market,” he said.
Meanwhile, a willingness, and even enthusiasm, among major employers to offer remote work or greater flexibility to employees long-term has cemented what might have been housing trends contained to the pandemic into market shifting forces.
That means 2021 will be a strong year for cities with ample single-family housing stock, preferably on large lots, as is the case in places such as Los Angeles, Sydney and greater Miami.
Meanwhile, San Francisco and New York City face a slower recovery, though one that’s on the horizon as vaccines and increased travel bring vibrant urban centers back to life.
Here’s a look at what’s in store for top global markets:
House hunters inundated South Florida’s mansion market in the second half of 2020, as the pandemic supercharged migration from high-cost Northeastern and Western states toward Florida—a trend that’s likely to define 2021 as well.
The desire for more land, larger houses and the ability to be outside year-round attracted home buyers to Florida in droves during a time when many were confined to spending time at home. Incomers have skewed, unsurprisingly, toward a more affluent set, who were able to work from home or uproot their businesses to Florida, and it’s paid off in spades for the luxury markets in Miami, Fort Lauderdale and Palm Beach (and their more inland luxury neighbors).
As an example, new contracts signed for million-dollar-plus houses in Miami-Dade County last month were up 54% over last year, and the soaring demand for luxury single-family homes has been felt even more outside of Miami. In Palm Beach County, the number of single-family home deals above $1 million nearly tripled from a year ago in November, according to data from Douglas Elliman and appraisal firm Miller Samuel.
“The entire Florida market is experiencing a big increase in demand, especially in single-family homes and larger condominiums,” said Beth Butler, southeast regional director of new development at Compass, adding that she’s optimistic about the outlook for 2021. “There seems to be a high demand in the luxury space.”
Winter in the Northeast as the pandemic rages will likely spur even more individuals to move to Florida, said Craig Studnicky, co-founder and CEO of real estate company RelatedISG.
Condos may even see some payoff. With so little inventory available for single-family homes, affluent buyers in South Florida may turn to larger, well-amenitized apartments, helping to absorb an abundance of luxury condo supply in Miami and its neighboring barrier islands, Mr. Studnicky said. That finally sets up Miami’s luxury condo market, which was challenged in recent years from oversupply, for a period of price growth, especially with the next wave of condo construction presales a couple of years away.
Meanwhile, the reopening of foreign travel, and a U.S. dollar many analysts have predicted will weaken during the global economic recovery, may further fuel condo activity in Miami and Miami Beach in the second half of 2021 as Latin American buyers return to the city.
Even with the Covid-19 vaccine distribution underway, New York City is unlikely to see the hordes of home buyers who flocked to the suburbs and beyond during the pandemic make a sudden return in 2021—though some pockets of the Big Apple’s housing market will prove more resilient than others.
“A combination of factors are hitting together and not in New York’s favor,” said Danielle Hale, chief economist at realtor.com, which predicted sales in the sprawling New York Metropolitan Statistical Area will slip another 3.8% in 2021 compared to 2020. (Mansion Global is owned by Dow Jones; and both Dow Jones and realtor.com are owned by News Corp.)
When the pandemic struck, New York’s luxury market was only just recovering from back-to-back tax changes at the federal and state levels that had disincentivized high-net-worth individuals from buying or even residing in New York City. But then the five boroughs faced the deadliest Covid-19 outbreak of the early pandemic, sending high earners looking for refuge everywhere from Florida to Greenwich, Connecticut. While other luxury markets saw a swift rebound in the summer and fall of 2020, New York City’s luxury sector has only in recent weeks begun to see new contracts normalize for homes asking $4 million or more.
And for those deals that are taking place, tastes have changed, said Frederick Warburg Peters, CEO of Warburg Realty. There’s been a surge of interest in Brooklyn’s slightly more affordable townhouse stock, as a set of dedicated citydwellers look for more privacy, Mansion Global has reported. Agents have also noted growing activity among buyers in search of discounts at the highest echelons of the market.
“No one is thrilled about sharing an elevator; no one is thrilled with being cooped up indoors; and almost everyone needs a home workspace,” Mr. Warburg Peters said. “As a result, terraced apartments, apartments with alcoves or small rooms that can become offices, and townhouses all attract attention.”
These trends are predicted to continue into the new year as people continue to work and school their kids from home.
The widespread and efficient deployment of a vaccine will be the single-biggest factor in bringing New York City’s housing market back to life, said Donna Olshan, president of Olshan Realty and the author of a weekly Manhattan luxury market report.
Without it, the institutions that make New York City attractive—it’s packed museums, theaters and restaurants, and its bustling tourism—will stay closed or altered beyond recognition, and the task of organizing socially distanced home tours while people work and school from their living rooms will continue to present an obstacle to efficient home searches, Ms. Olshan said.
There are some longer-term trends to expect once activity returns to the city. Those include the desire for home offices, more defined kitchens and living rooms and the greater demand for private or at least shared outdoor space. There could even be a trend for larger home footprints overall, Ms. Olshan said.
Like New York, the San Francisco market has seen a flight to greener environs, with well-heeled home buyers looking in nearby Marin or San Jose counties or even further afield to Monterey or Lake Tahoe at the expense of the city’s urban core.
San Francisco County has largely been the odd man out in a sea of surging luxury home sales. From May to October, there were 34% fewer luxury condo sales in the city and only a slight 6% rise in luxury house sales, while every adjacent county recorded double-digit spikes in high-end activity, according to data from Compass, which sets the luxury threshold at $2 million-$3 million depending on the county.
The region has generally benefited from a robust tech sector where companies and employees weathered the pandemic with finances intact. The strong local economy paired with the expectation of a vaccine in the second half of next year could lead to a slight rebound in sales activity in 2021 in San Francisco, realtor.com has forecasted.
But the real epicenter for luxury activity in the Bay Area in 2021 will form in Silicon Valley and the East Bay, both of which have seen luxury deals boom since the spring as buyers gravitated toward larger properties with more land and outdoor space. Luxury sales in suburban Contra Costa County rose 70% from May through October compared to the same period in 2019, according to data from compass.
Meanwhile, San Jose-Santa Clara, at the heart of Silicon Valley, is on track to be among the strongest housing markets next year, according to a forecast from realtor.com, which predicts sales to increase nearly 11% over the next 12 months compared to 2020 pushing overall prices up by the same margin.
Conversely, the sprawling, leafy properties that typify Westside Los Angeles have allowed the city’s luxury housing market to weather the pandemic with an advantage over densely built cities like New York or San Francisco—a reality that will continue to support a robust market and price growth in 2021.
Affluent buyers, who in Manhattan or San Francisco left for their respective suburbs to get the home offices, private gyms, pools and backyards they desired, could scale up in Los Angeles without leaving town (or at least the county). Some, of course, preferred to ride out the pandemic in nearby Montecito while others left for the desert around Palm Springs, but there was no practical need for a mass exodus from the city and that’s helped keep Los Angeles homes trading hands.
Home sales at $2 million or more rocketed past 2019 levels in the late summer and fall. In September, for instance, 418 homes went into contract compared to just 259 the same month last year. Even in November, as the holidays set in and a curfew was put in place to stem surging coronavirus cases, deals of that caliber were slightly above 2019 levels, according to contract and listing data from Douglas Elliman.
Still, there could be challenges ahead. Affluent Los Angeles home buyers proved sensitive to rapidly rising prices paired with an uptick in interest rates in 2018-19, meaning the gradual increase in mortgage rates expected over the course of 2021 and significant price growth predicted next year could become a challenge.
“We could see that start to affect buyer psychology,” said Ms. Hale, whose team at realtor.com forecasted overall home prices to rise over 10% in the Los Angeles metro area next year.
Extremely low inventory (even in the multimillion-dollar home market) will continue to drive competition and prices, but may become discouraging for some home hunters who are unable to find the homes they want.
Pockets of Los Angeles County that proved particularly resilient in 2020 will likely lead the charge next year, as well, with the scenic beaches and foothills of Malibu, and large lots of Brentwood and Pacific Palisades continuing to draw well-heeled buyers.
Sydney has a lot of parallels with Los Angeles, as its core luxury market—the most expensive neighborhoods in Australia—is centered in the city’s sprawling, mansion-lined eastern suburbs.
The pandemic only raised the appeal of large, amenity-rich properties in the city’s waterfront suburbs, including posh areas such as Bellevue Hill, Vaucluse and Rose Bay, which all saw more homes transact in 2020 than a year ago, according to data from CoreLogic. That activity is poised to continue into 2021, especially as foreign travel opens up and unleashes a measure of pent-up demand among foreigners and Australians living abroad, said Ken Jacobs, who leads a team of luxury agents for Christie’s International Real Estate in Sydney
“There was the usual concern of uncertainty” at the start of the crisis, Mr. Jacobs said. That gave way to a surge of interest that’s more than made up for the slowdown last spring. “Since then our biggest issue has been just a shortage of quality stock.”
Limited inventory and a steadily expanding buyer pool as travel reopens will keep pressure on Sydney’s luxury house prices.
Mr. Jacobs sees reason to be bullish on housing markets all along the coast of New South Wales, as demand for spacious, scenic homes has spread beyond Sydney’s eastern suburbs. The June sale of a A$24.5 million (US$18.6 million) house in Newport, in Sydney’s Northern Beaches area, was among the top 10 sales in Australia this year; as was a A$24 million house sale in Palm Beach, New South Wales, in February, according to CoreLogic.
With so many companies offering remote work for the long-term, Mr. Jacobs sees the boom in luxury home sales as part of a long-term trend.
“It’s a watershed moment, people are reassessing their whole life,” he said. “If you can find something substantial further out, people are trading off on distance but not quality.”
Year after year, analysts in Dubai have predicted the bottom of the market was finally near, but 2021 could very well be it.
Financial services giant Morgan Stanley has advised investors to bet on a strong rebound of travel and tourism to Dubai. It will begin as a steady increase in foreign travel to the city that crescendos dramatically next fall. That flood of foreigners—a vital source of demand for housing in the city—has long been considered the sponge that would help soak up the glut of development that has weighed on prices in the city for years.
A correction, underway for the better part of the last decade, has brought Dubai home prices down to decade lows this year. The price slump is now offering buyers a tremendous opportunity to buy a villa or luxury apartment at steep discounts before the reopening of international travel stimulates increased investment in the city. Expo 2021, the world fair postponed one year in light of the pandemic, is expected to draw millions, if not tens of millions, of visitors to the city beginning in October.
As a result, the city is expected to see prime housing demand “rise significantly,” resulting in more luxury home sales next year, forecasted property consultancy Knight Frank.
Turbo-charged demand likely won’t be enough to spur luxury price growth next year, with Knight Frank predicting prime prices to slip 2%. But there may be highly sought-after pockets of the city that start to see prices rise, specifically in fully developed villa neighborhoods like the Palm Jumeirah, Arabian Ranches and Dubai Hills Estates, where prices have already begun to rise on a monthly basis, according to U.A.E.-based data site Property Monitor.
Prime London housing will prove more resilient to the upcoming end of a temporary stamp duty holiday than the country’s general housing market, as affluent buyers are less likely to make purchase decisions based on £15,000 (US$20,223) in savings—the maximum tax break.
That bodes well for the city, which was on track to end 2020 with agreed-to sales up 4% over last year, according to research from Zoopla. The city’s £5 million-plus market heads into the new year on a particular high note, with sales of such homes from September to November up nearly 10% over the same period last year, outperforming every other price band, according to a report from data firm LonRes last week.
Nationwide, demand has surged for country homes, a narrative that often eclipses the London story.
“London has had a strong year,” said Tom Bill, head of U.K. residential research at Knight Frank. “It just didn’t have as good a year as the country,” where home sales are on track to surpass the five year average, despite being paralyzed for eight weeks.
The stamp duty holiday, which eliminates the transfer tax on the price of homes up to £500,000, ends on March 31 and may affect demand at the very bottom of the luxury market—homes priced between £1 million and £1.5 million. But much of the prime market falls above that range.
The reopening of the city to international travelers, which are currently subjected to long quarantine orders upon arrival, will also unleash a degree of pent-up demand for prime homes. But it remains to be seen how much a 2% foreign buyer surcharge that goes into effect April 1 will counteract the effect of increased travel, Mr. Bill said, adding that predictions of a strengthening pound in 2021 following Brexit could also dampen foreign activity.
All in all, the surcharge and stronger pound may prove a net positive for London buyers, he said.
“It could take a little bit of heat out of the market,” he said, adding that the surcharge could “stop price inflation from getting too strong and may help market liquidity.”