Luxury Housing Market Worldwide Losing Steam

A few days ago I opined on my concern about the Denver luxury housing market. Granted my observations are anecdotal i.e. speaking with peers, eyeballing http://www.REColorado.com and looking at statistics including new listings versus those under contract and closed.

Well it seems the issues are worldwide. In yesterday’s Wall Street Journal there was an article about luxury home sellers dropping their asking prices. Granted, Denver does not have many listings in the $5M and up range, however our high-end market is witnessing an increase of listings.

The City of London, one of the most sought after markets of investors worldwide looking to shelter their Yuan, Ruble

s, Rand, Rupee’s and other currencies is also witnessing a slump in the upper echelons of the market. The following article from Bloomberg illustrates this as developers are offering 20% discounts for bulk purchases.

I also work in the New York City marketplace and I have noticed the upper-end of the market senses nervousness. Granted with the average sale in Manhattan hitting $1.7M, the upper-end is truly upper however most new developments are courting the deluxe and luxury buyer yet inventory seems to be providing a glut in the market as demand softens.

Denver is a unique market. We are NOT a world capital city. Our housing market usually does not gyrate the way some similar post-war city markets have including Las Vegas and Phoenix. We have a very stable employment base, a diversified economy and an enviable lifestyle. However we cannot assume events in other markets will not impact our local and regional marketplace.

Again time will tell and I am not suggesting we need to buckle up as the downturn is coming. Instead I hope some rationality comes back to the market and we avoid the snowball effect of increased inventory leading to a glut along all price-points.

Is there a Glut in the Denver Metro Luxury Housing Market

While stories abound concerning newer deluxe and luxury rentals starting to offer incentives to fill their units, little has been mentioned about the ownership market.

If you have driven through Cherry Creek, Washington Park East, Hilltop or Country Club you may have noticed the proliferation of real estate brokerage signs advising homes for sale. Granted we are entering the Spring season which is always a period of increased listings. However for fun I ran some statistical analysis based on our multi-list system.

At present in the Metro Area as of April 8th, 2016 there is 10,934 homes on the market. Breaking down the market by deluxe and luxury price segments for the metro area and separately the City and County of Denver:

$1,000,000+ = 1,400 Homes of which 221 are located within City of Denver

$750,000+ = 2,424 Homes of which 366 are located within City of Denver

$500,000+ = 4,651 Homes of which 740 are located within the City of Denver

Based on the above the luxury market is truly spread across the metro area with the City and County of Denver accounting for approx. 16% of the deluxe and luxury inventory on the market (a percentage I would assumed was higher as the Central City is generally the most expensive PSF real estate however the C&C of Denver does include outlying suburban markets including Green Valley Ranch and Bear Valley).

My concern is approx. 44% of the inventory on the market at present is asking over $500,000. While this number would be considered low for coastal markets, I am concerned as the average income in Metro Denver would translate to a home affordability in the mid $300’s.

Having been through multiple housing cycles during my 30+ years as a resident in Denver historically the deluxe and luxury market is the first to show signs of fatigue, a potential over-bought market, signs of weakness ahead i.e. an increase in inventory and days on the market.

While I am not expecting a serious downturn or correction I believe the deluxe and luxury market is advising us the rampant run-up in prices may be receding. I personally am seeing more listings in Cherry Creek North that last year at this time would have come on the market at $1M+ being presented at more realistic pricing. I am also witnessing a glut of larger homes in Denver’s Hilltop, Washington Park East and Country Club neighborhoods hitting the market.

Yet macro market fundamentals have not changed i.e. the stock market while running sideways seems stable, interest rates continue at historic lows and unemployment rates continue to drop. On a macro level Denver now has the lowest office vacancy rate since 1990 and our unemployment rate is the envy of may rust-belt cities.

Thus something is happening in the market and only time will tell. However if a client asks me to predict the next few months, my advice would be unless you truly love the residence, plan to reside in it for a minimum 3-5 years or its just so attractively priced, my view is sit on the sidelines if you are able.

I will be interested to look at this post one year from today.