On the Market

Chief Economist Matthew Gardner

“ WHILE I‛M PREDICTING SOMEWHAT OF A SLOWDOWN IN 2019, IT WILL BE REMEMBERED AS A YEAR WHERE BALANCE STARTED TO RETURN TO THE LUXURY HOUSING MARKET.”

On the Market

With the year drawing to a close, we asked Windermere Real Estate's Chief Economist, Matthew Gardner, to share his insights on the state of the U.S. luxury housing market. Here's how he sees it.

Q. BIG PICTURE, HOW IS THE LUXURY HOUSING MARKET PERFORMING?

A. The luxury home market across the U.S. continues to perform strongly, but I’m noticing the appearance of some headwinds that are worth a closer look.

The luxury market has suffered from some of the same inventory constraints that are almost endemic across the rest of the housing market, but we’re starting to see a rise in inventory and a slowing of sales in certain cities around the country.

Q. HOW DOES RISING HOUSING INVENTORY AFFECT THE MARKET?

A. The increase in the number of luxury homes for sale has started to have a tapering effect on price growth, but all housing is local, and some markets are performing far better than others. Luxury

markets in Maui, Northern California, Colorado, and Sarasota, Florida, are all experiencing substantial price growth, while there are noticeable slowdowns in many parts of New York and New Jersey. Even Queens and Jersey City, which have continued to benefit from high demand, have seen price growth stall recently, indicating that those markets could be losing some steam.

Q. WHAT’S CAUSING THE SLOWDOWN?

A. Cities with high property taxes—like Boston, Austin, New York City, and Chicago—seem to be experiencing the most slowing. The federal tax changes limiting the deductibility of property taxes are the likely culprit for these slowdowns.

There’s also been a significant decline in foreign buyers from countries like China and Canada. According to the National Association of Realtors, the number of purchases by international buyers fell by 21 percent between 2017 and 2018, amounting to a drop of $32 billion—the largest decline on record.

Research shows that foreign buyers are pulling back amid political uncertainty in the U.S. Ongoing concerns about a trade war, combined with rhetoric against foreigners, have done their part to dampen some of the enthusiasm to invest in U.S. housing. Furthermore, the Chinese Central Government has

started placing tighter controls on the ability to spend money outside of mainland China. Rising home prices and a strong U.S. dollar have also contributed to the tumbling interest in luxury real estate from overseas buyers.

Q. HOW DO YOU SEE THE LUXURY MARKET PERFORMING IN 2019?

A. Luxury markets in areas like Boston, Clearwater, Austin, and Alexandria, Virginia, will continue to slow down for the aforementioned reasons. In other parts of the country, home buyers will provide the demand needed to keep the market plugging along at a healthy pace.

The changes affecting mortgage interest deductions and property taxes will continue to impact luxury home sales, but some of this will be offset by tax changes that favor high-income households. Something else that will help keep the luxury market afloat is jumbo mortgage interest rates, which remain remarkably competitive compared to historic standards.

On a whole, luxury home sales have been strong in recent years. While I am predicting somewhat of a slowdown in 2019, it will be remembered as a year where balance started to return to the luxury housing market.