Vol 7 No. 15 - January 3, 2007

Luxury housing market grows as boomers age
By Louise Bolger
sun staff writer

Happy New Year and welcome to 2007, one of the most anticipated years in the history of real estate. With everyone sitting on pins and needles waiting to see how the normally busy winter buying season will trend, there is one segment of the housing market that hasn’t missed a beat. Nationally, the luxury housing market may be the only silver lining in an otherwise dull year.

The Luxury Home Council reports several hot spots around the country where sales and construction of luxury homes are growing. They report that the fundamentals are still strong for affluent buyers. They have a strong economy, strong GDP growth, low unemployment, a booming stock market and are less affected by increased interest rates.

Phoenix, Ariz., had 32 homes sell for $5 million or more in the first 10 months of 2006. Manhattan, a price leader in almost every area, now boasts the average purchase price for a condominium at more than $1 million, and in the upper 20 percent of the New York market, the average sales price has surged to $4.5 million. California luxury home prices are up in all the regions, Los Angles, 12.8 percent; San Diego, 6.4 percent; and San Francisco 4.8 percent.

In addition, luxury home developers show no sign of being influenced by the slow down in the general real estate market. From Utah to Denver to New York City there are construction plans catering to the super-luxury market. Even Canada’s luxury market is strong, especially luxury downtown apartments and condos in urban areas.

Naturally, the driving force behind the continued success of the luxury real estate market is the aging baby boomers. Baby boomers are a 78 million strong demographic force, becoming the target market of choice for luxury home builders and developers. Almost one in four baby boomers, or roughly 19 million of them, have a high net worth of $500,000 or more, and this is expected to rise as the generation ages. Virtually all of these high-net-worth households are homeowners and 47percent own more than one home.

According to the National Association of Realtors, boomers want more than just four walls and a roof when buying a home. They also want amenities, including cultural activities, and the luxury home developers are giving them what they want. In addition, Architectural Digest and Sotheby’s International report that 36 percent of affluent families plan to invest in real estate in the next 12 months.

Trading up, a relatively new phenomenon among buyers of all products, has had an important impact on the luxury home market. The theory is that consumers when given the opportunity and ability will almost always choose to trade up to a higher standard product. In addition, this growing trend seems to be largely unaffected by national economic issues and instead is being driven by socio-economic influences. Once consumers have met their basic needs and still have disposable income available, they will trade up to products and services that are emotionally meaningful to them. Sounds like keeping up with the Jones, for the millionaire.

Even if your home isn’t in the luxury home category, you can still benefit from the good news coming out of this marketplace. Super-rich people spending a lot of money eventually has to trickle down to us mere mortals. And since Anna Maria has quite a few properties that could be considered luxury homes, this could happen sooner rather than later. In the meantime, keep your eye on the real estate ball in the upcoming year. It will undoubtedly be an interesting one to follow.

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