Wealthy individuals are increasingly looking for smaller investment properties. Younger millionaires want real estate to be less affected by extreme weather and climate change in the coming decades.
Well-heeled Americans are increasingly looking to make their homes abroad, including Central America, Asia, Mexico and Canada. And with long-term wealth growth in mind, wealthy people are investing in second homes, rental properties and vacation homes to improve portfolio diversification.
These include the recently published findings from Coldwell Banker Trend Report 2022, which analyzes perspectives from the company’s exclusive Coldwell Banker Global Luxury/Censuswide survey, as well as insights from the Institute for Luxury Home Marketing, Wealth-X and a range of industry experts. The report provides in-depth analysis of consumer survey data from more than 2,000 US high net worth individuals to help determine the trends that will drive the luxury real estate market today and in the future.
Those who bought quality homes in the last half decade have done well. Luxury single-family homes are fetching 60% more than in 2017. Attached upscale homes have seen prices rise 41% over the same period. That may be why the aforementioned survey found that four out of five affluent respondents consider real estate a safe investment, helping to put high-end real estate in a strong position for 2023.
times are changing
One of the key findings of the Coldwell Banker report is that the luxury market is “showing signs of a reboot,” according to the report’s authors. Higher interest rates, inflation and uncertainty have reduced demand this year.
Also, the pandemic prompted high net worth shoppers, whose purchases had skyrocketed in 2020-21, to shift their focus
The Trend Report also found that most analyzed luxury home markets remained seller’s markets through late summer 2022. Still, buyers will increasingly see the trend in their favor and enjoy greater bargaining power, although they continue to struggle with reduced inventory levels and inflated price tags.
As they grapple with volatility, economic uncertainty and higher interest rates, it’s perhaps not surprising that wealthy buyers have changed their minds on second homes, investment properties and smaller assets in general.
Analyzing single-family home sales in 20 US markets from April through August of this year, the report’s authors found that smaller footprints of 2,500 versus 3,500 square feet are increasingly preferred. Such configurations sold 18.6% faster than larger single-family homes of 4,500 to 5,000 square feet.
Many of the past buyers may want to buy again soon. Reason? Consistent with news reports of the rampant buyer regrets seen frequently in 2021, many homebuyers have expressed dissatisfaction with the homes they’ve bought since the pandemic began. About every fourth person who bought a house in the last 24 months is dissatisfied.
The Trend Report echoes the earlier finding that wealthy individuals see real estate as a safe investment, and found that during this time of uncertainty, wealthy individuals gravitate toward properties that offer psychological, emotional, or monetary stability. “They will look to diversify their real estate portfolios, create long-term generational wealth, make opportunistic purchases in traditional luxury centers, or seek properties in locations less affected by climate change and extreme weather conditions,” the authors write.
After all, the rich are looking internationally for home investments. With the strong US dollar, an increasingly volatile US political climate and rising cost of living, more than 9 in 10 (92 percent) are considering seeking their next home investment in foreign markets.
Whether buying overseas or at home, wealthy buyers looking to avoid higher mortgage rates will turn to cash and creative financing to fund their purchases.