Historically, real estate market dynamics were considered a local phenomenon. In the luxury sector, this is no longer the case, as the value drivers for prime property in one corner of the globe increasingly originate from a completely different region of the world. This trend is most evident in secondary markets—second home and resort lifestyle destinations.
As revealed in our just-released Luxury Defined 2018 report on the global luxury real estate sector, sales of million-dollar-plus properties in second-home and resort lifestyle destinations worldwide soared in 2017. Luxury sales in second-home markets grew by 19% year-on-year in 2017, up from 7% annual declines the year prior.
Vacation-area markets reflected strength in luxury housing markets more broadly, as well as macroeconomic factors impacting luxury housing in buyer’s primary resident markets. As prices of luxury homes in many urban primary markets have rapidly appreciated in recent years, prime properties in second-home areas appeared reasonably priced to potential affluent buyers from these regions.
These factors, coupled with strong consumer confidence and stock market highs, bolstered 2017 vacation home sales. Furthermore, although luxury homes in some second-home destinations are no longer priced at the bottom, prices remain a long way from the top, offering significant incentive for buyers to purchase.
Ranking as the hottest second-home markets worldwide in our Luxury Thermometer, New Mexico’s capital city of Santa Fe posted luxury sales volume levels not seen since 2005-2006. “Santa Fe’s luxury market has been one of the slower markets to improve but we are finally seeing some solid gains,” says David Barker of Barker Real Estate. “Luxury sales continued marching up the ladder with an 18 percent increase in 2017 sales over 2016. We see no change in this trend in 2018 as Santa Fe continues to rate highly in buyer’s minds.”
Other secondary markets in the US also saw resurgent sales. In North Carolina, Lake Norman’s luxury market swelled. “The $2 million+ market had its best year since 2007,” notes Reed Jackson of Ivester Jackson Distinctive Properties. Million-dollar-plus home sales in the city soared by 54 percent year-on-year. In the Rocky Mountain ski markets of Telluride, Colorado, and Sun Valley, Idaho, luxury sales posted 38 percent and 51 percent annual gains respectively.
Likewise, in the French seaside second-home market of La Baule, affluent buyers are once again transacting en masse, as rising house prices in their own local housing markets and still-low interest rates make a lifestyle purchase increasingly appealing. Property prices rose by 4.5% in 2017 says David Bilder of La Baule & Vous, boosted by a resurgence of affluent Parisian and overseas buyers, attracted by the region’s discreet glamour and value luxury prices.
Despite the generally rosy outlook for secondary markets, inventory constraints plaguing many primary housing markets are beginning to be reflected in some second-home destinations. “Luxury sales volume was down dramatically in 2017, primarily driven by lack of luxury housing supply,” says Chris Rhinesmith of Pine Acres Realty in Cape Cod, Massachusetts.
In the ‘weekender’ market of Muskoka just outside of Toronto, “Inventory for the recreational marketplace as a whole has declined by almost 50 percent in two years,” says Chris Kapches of Chestnut Park Real Estate. “It is not surprising that declining inventories lead to declining sales, and concomitantly to rising average sale prices. Reduced inventory levels continue to put pressure on buyers, as they are being forced to pay more for desirable recreational properties.”
Much of the second-home buying power over the past 12-18 months has emerged from record-breaking equity markets. Rising interest rates are likely to temper high equity market prices, which have traditionally served as an indicator for home sales volumes at resort and lifestyle housing markets, particularly at the high end. It is with great interest that we watch how second-home markets are impacted by these shifts in market fundamentals, as well as how second-home markets are affected by the new US tax laws in the next 12 months.
[ Excerpt from Christie's International Real Estate's 2018 Luxury Defined white paper on the international prime property market. Read more insights from the latest report here ]