Signs of a Roaring Luxury Residential Market
August 30, 2018
V.P. Business Development & Real Estate Analyst, Grand Canyon Title Agency
Defining what a luxury residence is can be difficult. Someone’s notion of what constitutes luxury may not meet another’s definition. This article will look at the luxury market from several different angles. One such angle is price, though price is not necessarily the only factor that determines what a luxury residence is. The only thing I am certain of in writing this article is that, to some, I will butcher the term “luxury.”
Sales at $2,000,000 or More Soaring
The chart below shows the number of sales $2,000,000 or greater for the first half of each year from 2004 through 2018. It includes both single-family homes and condos. The geographic area is Maricopa County. All of the data in this report is from the Arizona Regional Multiple Listing Service, Inc., known as ARMLS.
2018 is on its way to becoming the record holder for most sales ever at or over $2,000,000 in a year. As seen in the chart, the first half of 2018 saw 250 such sales. The only other years in which the first six months saw over 200 of these sales were 2006 and 2007, with 206 and 220, respectively.
Sales by City and by Price Range
Table 1 shows the number of sales for cities in Maricopa County at two different price ranges — $1,000,000 to $1,999,999 and $2,000,000 or greater — for the first half of 2018. Both price ranges include single-family homes as well as condos. As you can see, Scottsdale and Paradise Valley dominate in the number of sales in both sale price ranges, with Phoenix a distant third. Even though Paradise Valley has 10 fewer sales than Scottsdale at $2,000,000 or above, it is geographically much smaller than Scottsdale. Paradise Valley is 15 square acres in size compared to Scottsdale’s 144 square acres. Owing to its size, Scottsdale has more luxury markets than Paradise Valley, such as South Scottsdale, Mid-Scottsdale, and North Scottsdale.
Table 1. Sales for First Half of 2018 by City (Maricopa County).
Estimated Months of Supply by Price Range
Table 2 shows the estimated months of supply for Maricopa County by price range. It shows five months of supply in the $1,000,000 to $1,499,999 price range. A five-month supply is generally thought of as neither a seller’s nor a buyer’s market. Not too long ago, this was a buyer’s market. The nine- and 10-month supplies for homes in the $1,500,000 to $3,999,999 price ranges are historically low. I remember when the estimated months of supply in these price ranges was two to five years.
Table 2. Estimated Months of Supply by Price Range (Maricopa County).
The Construction of Spec and Build-to-Suit Luxury Residences Is a Sign of a Robust Market
The spec construction of luxury homes is a sure sign that the luxury market is roaring back. As of this writing, 43 Paradise Valley listings at $2,000,000 or more have been built (or will be completed) in 2018. I believe this is the highest number of luxury spec homes in this price range on the market since before the Great Recession.
Just south of Shea Boulevard off of Hayden Road in Mid-Scottsdale sits another sign of the luxury market comeback. The subdivision Fox Haven by Cachet Homes just sold its fifth spec home, this one for over $2 million. The project currently has another spec home on the market in this price range and is in the process of building two more in the same price range. Cachet Homes has started another project down the street, in which they will build 10 spec homes in the $1,000,000-plus range just south of Shea Boulevard on 56th Street.
Build-to-suit homes are another sign of the strength of the luxury market. A build-to-suit home is the result of a home buyer contracting with a builder to build their home. “I’m seeing more interest from consumers in applying for construction loans in 2018 than in previous years,” says Johnson Bank Vice President Brian McKay. Michael Nelson, a loan officer for Johnson Bank, says their customers qualifying for construction loans are those with high-paying salaries, such as entrepreneurs and doctors, and even retirees. “I’m seeing activity not only in Paradise Valley, Scottsdale, and Arcadia, but all the way to Lake Havasu, Yuma, Bullhead City, Page, Tucson, and Pinetop,” Nelson says.
But What Are Luxury Buyers Looking for in a Residence?
According to Julie Pelle of Realty One Group, homes that are 10 to 15 years old that are of a European or Tuscan style are not that desirable for many of today’s buyers, and many of these homes may just sit on the market. “Many of my buyers would rather have a newer, smaller, energy-efficient luxury home,” Pelle says, noting that even those with money in the bank are conscious of energy efficiency. “Also, remodels on older homes need to be done right if sellers want to attract buyers.”
Has the Slowdown of Canadian Buyers Slowed Luxury Sales?
Canadian buyers love living in luxury in Scottsdale. One of their favorite locations, because of its Scottsdale address and its amenities, is the popular Gainey Ranch development. However, economics have caused the number of Canadians buying in Gainey Ranch to wane, according to Frank Ellis, an agent with Coldwell Banker who lives (and specializes) in the area. “Canadian buyers have been replaced by buyers from Denver and Chicago and everywhere in between,” Ellis says, adding that the Gainey Ranch market hasn’t been this hot since 2006. Schilling Fine Homes’ Dee Bloom says inventory is probably the lowest she has ever seen it in the 20 years she has lived and worked in Gainey Ranch, and it’s not unusual for her to have a contract the day she lists a property on the MLS. “About a quarter of my buyers are from out of town,” Bloom adds.
September 28 is the Day to Find Out More About the Luxury Residential Market
On September 28, from 9:00 a.m. to 12:30 p.m., the Arizona School of Real Estate & Business will hold a seminar entitled Luxury Homes at its Scottsdale location. The seminar will feature luxury specialists from Paradise Valley, Scottsdale, Arcadia, Phoenix, and Fountain Hills sharing their knowledge and experience. They will address buyer and seller trends, hot areas, how to price, how to show, how to advertise, and how to address a seller’s expectation for days on the market. The specialists will educate attendees on what their clients should expect when doing a build-to-suit and what the buyer needs to understand about the terms and conditions of a builder’s contract. They will also answer questions related to social media’s role in the luxury real estate market and whether or not new real estate models will change the way luxury homes are listed and sold.