Strong Market for Luxury Real Estate Predicted for 2017
There are multiple reasons why the luxury market should flourish in 2017.
- Not only are mortgage rates still low by historical standards, but it will be easier to obtain a mortgage this year. In 2017, for the first time in ten years, government owned Fannie Mae and Freddie Mac will offer backing for larger mortgages.
- Foreign buyers are flooding the market in many cities across the country. There are a few reasons for this buying spree. Some buyers from places like Russia and especially China see ownership in U.S. real estate as an insurance policy and safe haven to park capital, fearing that their respective governments may, one day, seize assets (as happened in Cyprus several years ago), or at least place a heavy tax burden on the wealthy’s personal income and real estate assets. In China, for example, economic growth has stalled and is beginning to contract. The affluent class fears that their non-democratic, all-powerful government, short of tax revenue in a weakening economy could decide to target the wealthy to raise funds.
Additionally, in this regard, the volatility of foreign markets coupled with the many international crises is serving to make U.S. high-end real estate a safer port for investments. For example, according to the 24th annual survey of the Association of Foreign Investors in Real Estate (AFIRE) last year, “Most foreign investors expect to put more money into U.S. property this year. Sixty-four percent of respondents said they intend to make modest or major increases to investments in U.S. real estate when compared to recent years.”
- During the presidential elections, many affluent potential homebuyers and investors were focused on politics, trying to figure out what kind of investments to make depending on which candidate won. Now that the election is over, their attention is returning to business and homebuying. Investors, in particular, abhor uncertainty. Now that clarity has returned, these folks will find it easier to make decisions.
Evidence of increased activity in the luxury market in New York City, for example, is provided by The Olshan Luxury Market Report. The report informs us that there was a spike in real estate contracts in the city for properties valued at more than $4 million toward the end of 2016. During the last week of November, for example, there was a yearly high of $371.6 million recorded in new contracts.
And during the week of January 2nd through 8th 2017, 26 contracts were signed above $4 million. This is the highest figure for luxury real estate purchases for the first week of a new year in the Big Apple since 2014.
As New York is often the bellwether for the U.S. residential real estate market, expect the increased interest in luxury properties to spread to many cities around the country, particularly to the more affluent markets.